Ask Paul: Should we cut our losses on our Perth investment property?

Q. We are a little bit lost with what to do with our investment property in Morley, Perth. We purchased it back in 2013 for $442,000. At the time we were taking in $450 a week in rent.

Now we are down to $310 a week and that is after the villa being vacant for a few months and the tenants basically telling us what they are willing to pay.

The villa is now valued at between $350,000 and $440,000. The loan is split between fixed and variable (interest only) and we can pay the principal if we choose.

It feels as if we are pouring money down the drain when we could be saving it instead.

Most have told us to hold onto it. If we can afford to keep it, we should. But we are at a point where we can't see any growth with it besides development that is going to happen in the area (cafe, restaurant strip, refurbishment of the shopping centre).

Do we keep it and try to pay it down, or do we cut our losses and run before we lose even more money?

My husband earns $140,000 a year and I earn $90,000. - Erin

A. Crikey, Erin, that is a hard one for me. My obvious question would be, "What are the prospects for the property?" But you have told me quite clearly, and the outlook does not appeal to me.

Please note I have never been to Morley in Perth, so have no idea about its growth potential. But the rule is pretty simple. Property prices do well when the population grows; it does badly if not.

So you need to do further research about the medium- to long-term potential for population growth, and growth in jobs, tourism and development in the area.

If this is not positive, unfortunately, I would have to argue it means cutting your losses.

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