Like any investment, weighing up when to sell an investment property can be a tricky call to make – mainly because there are so many factors to consider. It all comes down to timing.
Sell too early and you could end up missing a property boom, but holding onto a loss-making investment that is depreciating in value doesn’t make sense financially. Ultimately deciding to sell an investment property or hold it will come down to your personal circumstances and investment goals – and should never be a hasty or emotive decision.
Should I sell my investment property or hold?
To help you decide when to sell an investment property start by asking yourself these basic questions:
- Is your property generating a profit? To calculate this accurately you need to factor in all your expenses/outgoings related to the property vs the income/rent you receive.
- Can you afford to keep and maintain the property? If your property is negatively geared, how long can you afford to cover all the costs of holding this asset?
- Have you calculated all the costs of selling? Many investors underestimate the costs involved in selling a property, including agent’s commission, legal fees, advertising, pest/building reports etc. There is also Capital Gains Tax (CGT) to factor into your budget.
Reasons to sell your investment property
- Your circumstances change
If your circumstances change it could make financial sense to sell your investment property. Examples of this include if you get separated or divorced, and all joint assets need to be sold and split. If you have been made redundant or are unemployed there could also be financial factors which mean you have to sell your investment property. You may have also retired recently and want to simplify your life and reap the rewards (and capital growth) by selling your asset.
- The local market has stagnated or is dropping
If your investment property is a location where values are dropping or stagnant, it could be a good time to cut your losses and sell. You first need to do your due diligence and establish that the local market has no prospects of recovering in the short/medium term – bearing in mind that property has a medium/long term investment window. Property data that could indicate a stagnant rental market include high vacancy rates and declining rental yields. An example of this is mining towns in WA, which have stagnated after the iron ore boom ended.
- Your investment property is costing too much to keep
Investment properties do cost money for items like upkeep/maintenance/repairs, leasing expenses and periods when the property is vacant. If you are continually having to budget for these expenses, then it could be time to reassess and sell your investment property. You do need to bear in mind that it is unlikely to be worth selling if you have held the property for less than a few years.
- You want to switch to a more lucrative investment
If you have found a more lucrative investment selling your current property could help fund this. This could be property in a different location with better growth prospects and returns. Here you would need to know what kind of return your existing investment property is generating to make it worthwhile – bearing in mind all the costs associated with selling.
- You get a great offer or the market is hot
At the end of the day you may also get an offer you can’t refuse. Ideally this will be well over the current market value. This does mean you should know what your property is currently worth, and get an appraisal to be sure of its current value.
Reasons to keep your investment property
- Your property is modestly profitable
If your investment property is turning a profit, though not setting the world on fire you should really be looking to hold onto it. Property investment is a long game, and it takes time to accumulate value over the long term – which requires patience and no hasty decision making. Stick to your guns and you’ll be rewarded with some tidy capital growth down the track.
- You haven’t held the property very long
If you are getting itchy feet and want to sell your investment property, take a deep breath and recall when you bought it. If you’ve held it for five years or less, you should probably keep it. Why? Because the associated costs of selling are quite high – and could set you back financially. You will need to budget for real estate agent’s commission and advertising costs, legal fees, repairs and more – all while paying off your loan.
- You can afford to keep it
Even if your investment property is negatively geared, if you can afford to cover the shortfall in rent/home loan repayments you should hold onto it. Often making the most of your eligible tax deductions are reason enough to keep an investment property. If it is positively geared or fully paid off then there is even more reason to keep this revenue generating asset.
How can we help?
If you have any questions or would like further information or you are seeking property tax advice, please feel free to contact our office via email –info@investplusaccounting.com.au or phone 02 9299 7000 to either speak with someone or arrange a time for a meeting so we can discuss your requirements in more detail. You can arrange a free 15 minute no obligation chat to discuss your options. Please arrange an appointment with our office by clicking here
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