Copping a Big Loss

Barefoot,

We are huge fans -- we religiously read your columns every week. We are in our 40s and earn around $140k between us. We have been badly burnt with a Melbourne CBD apartment. We owe $550k on it and rent it out for $360 a week. Today, units in the block are selling for just $400k. Do we sell for a massive loss and tack it on to our home loan, or hope in time it will bounce back?

Jen

 Hi Jen,

Only you can make that decision.

However, I have one observation to make after watching a lot of people lose a lot of money on dud property deals over the years: time doesn’t turn a bad property into a good one.

The truth is you actually lost your money when you bought. That money is gone. It’s not coming back. Now, you can anchor your expectations on getting back to $550k, but what you paid for the apartment is irrelevant to your renter, or the next buyer.All you can deal with is the here and now. So let’s deal with that. You own a $400,000 apartment which is costing you by my (rough) calculations around $10,000 a year in after-tax losses to hold onto. There’s a huge oversupply of Melbourne apartments, so I doubt your rent (or value) will increase anytime soon. The question you need to ask yourself is, knowing what you know now, would you buy that apartment today?

Thanks for your support,

Scott