Selling under performing unit

We have a one bedroom unit which is not doing great and due to recent land tax rises and a glut of new apartments, think it might be better to cut our losses and sell it off.

Both other house IP's are at 71% and 80% but this one is at 109% so if we sold we would need to come up with the cash as the property is worth less than the purchase price. As we don't have the cash to pay out the loan, is it possible to have the remainder put on the other IP as a top up which would still keep it under 80% LVR?

I can't see any real long term growth for this apartment now and it is costing us about $2500 a year before tax (without maintenance etc). Would there be any arguments for holding on to it or is selling it a better option?

 

Land tax on the unit is possibly the least likely culprit as the land value would be minimal.

How long ago did you buy it?

Are you claiming depreciation?

What has changed your investment decision?

Capital growth isn't instant - it takes time.

 

Thanks Scott No mates, we bought it about 3 years ago and since then apartments have just flooded the area causing the rent and the value to go down, Land tax used to be minimal but then the ACT Government got greedy and introduced a $1000 minumum for all properties so it bumped up. Claiming depreciation, but the property is now negatively geared and due to a change of our circumstances I wont be working for then next few years so can't receive any of the tax benefits either.
It was originally going to be the little cash cow - not marked for much growth but a low cost, positively geared so as to not cost us anything and provide a little bit of income.

 

It is possible to get some equity out of the other properties to pay out the loss if you sell.

 

Seriously - is $50/wk across your portfolio a worse scenario than having to carry the shortfall if you sell?

Consult your accountant whether you will retain any deductibility on the loan as there's no income orvasset when you sell.

 

Thanks Jess, I just wasn't sure if it was possible to just dump the short fall on the other IP.

 

It's not just the holding cost. The value is likely to reduce even further over the next few years. If the transfer of the difference to the other loan is doable then will see if it is more cost effective to sell. Also have to contend with a risk adverse partner who would be happy with no investment properties and a paid off PPOR so it's a balancing act

 

Holding onto a lemon is not worth $2,500 a year though is it?
I appreciate that Capital Gains as a long term play but a 1 bedder has limited growth potential as is but to be that negative cashflow on a 1 bedder seems like a bit of a dud to me.

The oversupply of apartments as well would indicate to me their is no better time to sell.

 

Depending on the age of the property, the oversupply of apartments might not have a huge affect. For instance, we have an old unit in Campbelltown, and there are heaps of brand spanking new ones that have been built in the last few years.

We've had no negative impact on ours at all, because they are two completely different products, commanding different price brackets. Our little unit is a low cost, basic unit, walking distance from everywhere. The other ones are ultra modern, high cost units that compete with stand alone housing in both purchase price & rental price.

Since it looks like you will lose money by selling, I'd suggest you do a little homework first. What was the median price for a similar unit at the top of the market, the last time the area boomed? How long ago was that? Is the market moving in the area, or is it stagnant? Go to some open homes of similar products & get a 'feel' of what people are saying & looking for. Are there many similar products currently on the market & how long are they taking to sell.

Depending on your portfolio, it may be best to sell one of the other IP's & put the funds towards this one (in an offset, of course).

These were some of the things that we looked at, before deciding which properties to sell, prior to Hubby retiring. The unit in the example above, was bought with the sole intention of selling, once the next boom hit Sydney. When we did the numbers for it, we decided not to sell it. Western Sydney was going great guns.....but Campbelltown, although growing, was not moving anywhere near as fast, and numbers at opens were really low, so we kept it. We've now decided to sell it off because there is virtually nothing on the market like ours & open homes are booming & sales are getting good prices.

 

Not sure if your first comment is tongue in cheek.

It's pretty hard to find a +ve cf especially if it was negative when you purchased and the land tax situation had changed.

But as Skater said, it sits in a different market.