While it’s important that you hold an investment property for the long term to maximise your profits, there will come a time when it makes sense to sell.
And when it comes to selling, timing is everything. Ideally, you should be able to hold on to your investment property until such a time when it’s most conducive to sell.
That time is when:
- The market is approaching its peak in terms of price growth
- You want to consolidate your portfolio
- The property is underperforming and you want to move your capital to better investments
- You’re leaving your job and need the cash flow to fund your lifestyle
- You’re facing financial difficulty and possible bankruptcy
When you’ve held your investment property for the past five years and haven’t seen significant capital growth, you’re essentially holding a dud property. In this case, you have to dump it. There are plenty of other markets where properties are growing dramatically.
You should also consider selling when the long-term demand in your market is declining or showing signs of slowing demand.
For example, if you bought in a regional area that’s main industry is mining, where the main employment is about to scale back on the workforce, you have to move fast and sell before the other properties hit the market.
The bottom line is if you do have to sell, the best time to do it is when people are willing to pay more than what your property is worth. Don’t rush to sell, but at the same time don’t hold out for too long. If you do, you may miss out and prices could fall before you’re able to sell.
Whatever your reasons, your aim should be to maximise your selling price. This means you should try and avoid finding yourself in a situation where you’re forced to sell.
BEFORE YOU SELL
Before you stick a for sale sign in the front yard, it’s important to be clear about what you want to achieve as a result of selling.
Here are a few suggested steps for you to consider:
- Go over the pros and cons of selling your investment property. Be clear about why you’re doing it.
- Get a valuation to get an idea of how much is your investment property is worth.
- Speak to your accountant regarding the capital gains tax implications of selling your property. Since this is an investment property, you will get a 50% discount on the capital gains tax if you have held this property for more than 12 months.
- Speak to an expert to gauge where your market is at now in the property cycle. You can also do the research on your own by looking at the property values over the past 3-5 years and see how they’ve performed.
HAVE AN EXIT STRATEGY BEFORE BUYING
Before you decide to buy a particular property, you need to have a strategy in place on how you exit it when the time comes or when the worst case happens.
For example, be clear about the triggers that would lead you to sell the property. Watch your cash flow like a hawk and keep an eye on your market.
Watch for any signs of changing market fundamentals and act decisively. Don’t let greed rule your head.
Put in place risk mitigation strategies such as hefty buffer in case you lose your job.
Before buying any property, always ask yourself:
- Can I sell this in a hurry without losing money?
- Who would buy it off me?
You should feel confident that if the worst case happens, you’re able to sell quickly without any losses.