A little bit of advice?

Here’s my situation.

I live in Tasmania, i have a 1950s (re-done) 2b WB house in Launceston, valued around the 160K mark. Mortgaged for 90K. We are now living in this house after returning to launceston.

I have a 1980s 6BR Br home in Burnie, valued at around 220K. It’s currently mortgaged at 240K, using equity in the first house as leverage. It’s currently tenanted, with only a 4% net rental return, and losing about 16K a year for tax purposes.

We have sold all of our other investment properties over the last few years, in order to leverage ourselves into the Burnie property, which was going to be the family home, before we moved to Launceston. As such its a terrible investment, not suited to the rental market.

Combined my equity is about 380k, with 330k Mortgage, or about 85% (so i pay M.I on both)

Repayments on both properties were originally about 800 and 1700 per month, and when we refinanced (interest only), they dropped to 600 and 1300.

We recently had our first child, and so are living on one income, earning around 2500 per month after tax, plus the rental of about 900 (total 3400). So over 50% of our income goes into paying off the homeloans. Of the remaining 1500 a month, 700 goes towards repaying loans, leaving just 200 a week for my wife, child and i – an amount that doesn’t really cut it.

Things are getting tighter, so i looked into selling the burnie property (we are living in the Launceston one). It has been a ‘large family’ accomodation for a few years since we bought (at tail of boom) and is in need of lots of minor repairs (threadbare carpets, walls need new paint, one window frame rusted, overgrown gardens, etc.

We were told that if we sold Burnie for market value, we would need to come up with the additional 30-40k (after expenses) ourselves, or be forced to sell our Launceston property (which we don’t want to do obviously). Neither option appears to be a possibility.

We don’t have any money to spare atm (owing ~27K on various personal & car loans, CCs), but were advised to spend 10-15K doing up the Burnie property for sale, as we would see our investment returned at least twice over. (new properties of this size selling for well in excess of 300)

The bank wants nothing to do with us (they’ve got us locked up tight for 3 more years on fixed interest loan, they know we can’t afford to go anywhere, and in another two years or so will prob lose it). So we need to battle out on our own.

What are your thoughts? Is there anything we can do?