Sell and cut losses or Invest Into Building?

Discussion in 'Investment Strategy' started by willister, 8th Dec, 2022.

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  1. willister

    willister Well-Known Member

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    Wife and I have differing views on this - currently we're in a bit of a dilemma - property is an old government concrete house, purchased in 2018 but probably 70k above what we should have purchased it for. It is 14kms from the CBD, land is 600m2. If we walk away today, we'll cop a 100k or so loss (this includes stamp duty), we considered putting it on the market same time last year but at the point, was probably break even point, we waited wanting perhaps in hindsight too greedily to waiting it out till we hit a 100k profit before we walked. So here are our options:

    1. Sell/Crystallise Loss:

    We could offset this capital loss as we have another IP with a 100K+ gain even in today's low-ish market in the future when we sell. Problem is wife reckons we risk the chance of jumping out of the frying pan and into the fire. The main problem is that the old house is having some serious foundation issues and likely needs fixing up VERY SOON. I also can't come to terms with copping a $100k loss.

    2. Fix Up Current Building, Re Rent and wait for the Market to come close to offsetting loss:

    Honestly, we could stomach a 20-30k loss/hit, but agent advised that if we were to cut out losses, is to cut it now before more interest rate rises which is likely. To do this I'd need a structural engineering report which is about the $1.5K mark plus possibly re-stumping which on last quote was about $7k to do. Again, a roll of the dice here given the building is nearly 60 years old and may or may not work. Old man did it on a BV home way back and he says it's a waste of money...given it sinks within 2 years anyway. Strategy here is again to ride out and sell near break even but again no real strategy as to how I'd get back into the market...likely find a cheaper suburb?

    3. Rebuild & Lease Out.

    Costs are exuberant, I could tap into my offset accounts but cost would need to be around $450k for a nice double storey circa 34 squares. I could fetch about $600-$650 a week conservatively for a 5/6 bedder and apparently there are tax Offsets with building depreciation? I'd say I have about 20-25 off good years of working life left. Wife is very warm to this idea but we'd be eyeballs in debt with banks and potentially extended family. If all goes well, I'd likely recoup building costs through rental by around 15 years but wife reckons given this option, we could "ride it out" or in the very worst case even if market still tanks after 20 years, live in it or give it to one of the kids.

    Being conservative, I'm not sure about Option 3 but my Mrs. and father swear by it's the one where you have more options?

    Thanks for your views, not considered advice!
     
  2. Tony@ByPass

    Tony@ByPass Portfolio Management Software Business Member

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    Which CBD is this one close to @willister? 100k seems like a big hit to be taking even with 70k over pay in 2018.
    Option 2 seems like it's worth considering. Spending 10k to buy some time and potentially save yourself a substantial amount seems like a good investment.
    Hard to comment on option 3 without knowing the location
     
  3. strannik

    strannik Well-Known Member

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    what was your plan for it when you bought it in 2018?
    as in, why are you considering selling now?
     
  4. New Town

    New Town Well-Known Member

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    I'd take choice two (but skip the report and just pay for the stumps). Or choice 4: defy gravity further by deferring the stumps work for as long as possible (on basis it's not a safety thing).

    Option 3 doesn't have more options it has only one - you're rebuilding. Thats a major undertaking (I'm on the less adventurous side as well).
     
  5. willister

    willister Well-Known Member

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    Quite frankly, we just didn't do enough due diligence, got a sense of FOMO and was perhaps blindsided by he fact it was relatively close to the CBD and over bided on the day. We didn't really have a clear plan and overlooked perhaps better opportunities that were cheaper - we snubbed places further out like Noble Park, Mulgrave or Wantirna which offered better houses and slightly larger blocks.

    Honestly I don't really like the area itself and street, I wouldn't buy again to be honest even at today's price. Our original goal really was just to buy a house to rent out to.

    Why skip the report? I mean the cracks itself look serious enough but I have no idea how long to be honest it would hold up before it's condemned or something severe.
     
  6. strannik

    strannik Well-Known Member

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    is it possible to rent it out as is, or is it not safe to do so? if it is possible, i'd probably do that and not worry about what the property costs right now. keep in mind that it's not a loss until you sell.
     
  7. Optimus

    Optimus Well-Known Member Business Member

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    Is this in Heidelberg Heights by chance?
     
  8. Optimus

    Optimus Well-Known Member Business Member

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    Why do you say it sinks within 2 years?

    That's not correct, if it's done properly that is....
     
  9. willister

    willister Well-Known Member

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    It's in Chadstone.

    Does re-stumping in general work...? I've heard from several re-stumpers who baulked at it because it's a concrete commission type house and some even said it does more damage than what it would be if I left it alone. There was only an older bloke who bothered to give me a quote and he claimed this was apparently some special skill only he and a few other blokes knew how to do. At the time I didn't want to take the risk of getting

    Hmm, not an engineer so would need some sort of assurance from an engineer. Most of the cracks are all around the joints horizontally and vertically. First two tenants within the 5 year span never complained about it, only this current bloke. Again, not sure if scaremongering or what, but almost all have complained it's really cold in Winter and hot in summer - which has 2 air cons and ducted heating. At best I'd squeeze a 1-2 year tenure out of the house before I'm possibly faced with the same decision again.
     
  10. strannik

    strannik Well-Known Member

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    Personally I'd get a building inspector, or an engineer out to have a look, so I can make an informed decision. It's couple of grand that can save lots of headache going forward.

    Then go from there. If it's safe to keep renting out then just do that until market changes and you can offload it, or construction prices drop and you can build a new one. Couple of years is a long time, lots of things could change.
     
  11. Optimus

    Optimus Well-Known Member Business Member

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    I'm a restumper in Melbourne.

    Of coarse restumping works... providing the stump holes are dug to the correct depth and size..

    I quoted/looked at one about a year ago, wasn't worth the risk for me.

    You need an underpinner, who can restump...

    To lift them concrete panels is not a straight foward process as they can want to twist and topple over... you need alot of acros/braces set up. So do not get a cowboy in.

    You defintely won't be looking at 7k, more in the range of 20-30k.. and that's if you can get someone who is
    A-experienced with them and
    B- willing

    Best of luck
     
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