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Ask Paul: My investment property has fallen 40% in value, should I sell?

ask paul investment property fallen value sell value cut my losses

Q. I am 32, married and wanting to start a family. 

When I was younger and still single I bought a studio student apartment which I bought off the plan in 2010 and paid $221,000. 

I paid for it with some help from family and a mortgage which at the moment is around $50,000. 

It has been rented since 2012 with a major student accommodation provider and I earn $13370pa and expenses are approximately $5800p. 

I recently spoke to a real estate agent from the same company that manages my property regarding selling it and I was shocked to hear that similar size apartments have been selling for around $130,000-$150,000 and that it takes time for them to sell.

I also mentioned this to my accountant who suggested that I should keep it since it’s always been rented and I don’t pay anything out of my own pocket.

My question is what should I do?

Sell it and cut my losses, since I doubt it will ever go up to what I bought it or keen it a few more years and just try and pay it off ASAP. – Val

A. Crikey Val, that either highlights the state of the current property market or that you bought it from attending a property seminar.

These seminars have been flogging overpriced properties for decades and must be avoided.

Anyway, I am really disappointed for you.

Nearly a decade ago you made the decision to plan for your future and bought the apartment with realistic expectations of it growing in value over the long period of time you have held it. But that is past history and we can only deal with the current set of facts.

Let’s take the mid-point in the agent’s valuation of $140,000.

Your rent after expenses is around $7500.

Earning 5% on $140,000 that is not a great return. It also sounds like your hopes for capital growth are low.

This does not surprise me, given the performance of the property over nearly 10 years, it is hard to think it will suddenly do well.

You will need to draw your own conclusions about population growth in the area you bought and other desirable characteristics such as new infrastructure and so on.

But based on what you have told me, in your shoes, I think I would cut my losses and put the money to better use elsewhere.

Written by Paul Clitheroe

Paul Clitheroe

Paul Clitheroe AM is a respected financial adviser and Money’s chairman and chief commentator. He is chair of the Australian Government Financial Literacy Board, and author of several personal finance books. Ask Paul your money question.

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