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When should you sell your Investment Property?

“I wonder if I should sell my investment property?” This is a question nearly every property investor asks themselves at some point, and occasionally we get asked to advise on this topic as well.

Residential property by nature is mostly a very slow and steady asset class. At Adviseable, we feel it’s best to take a medium to long term view when buying an investment property, as the normal time-frame to see meaningful results is usually around 10-15 years.

Yes, there can be boom periods, which can last up to about 5 years, but at other times the market can seem a bit stagnant. This is where a nagging suspicion can creep in that your capital could be better invested elsewhere.

When other asset classes and investments seem to offer bigger and quicker returns, the ‘opportunity cost’ of holding an investment property can make us wonder if it’s worth continuing.

An example where the question of opportunity cost may arise is if you were fortunate enough to see the equity in your investment property increase substantially during a boom period. This could result in the gross rental yield percentage of your investment property becoming smaller compared to the revised property value (eg if the gross rental yield fell below 3%). Despite the capital gains tax (CGT) payable, many people would see this scenario as a catalyst to sell their investment property and buy investments with a higher percentage income return.

There are many other valid reasons why you would consider selling your investment property. Here are just a few:

  1. The market you purchased in has been volatile and has little chance of future growth (eg some mining towns).
  2. Your property is designed for a niche market (eg serviced apartment or student accommodation) and there are ongoing cashflow/finance issues.
  3. You need proceeds of the sale to reduce personal debt (eg reducing home mortgage).
  4. Poor performance. You have held the property for many years and it hasn’t grown in value and is still negatively geared, causing ongoing financial stress.
  5. You have purchased a property with someone else that has different goals.
  6. You may have left the workforce and have a much smaller (or no) taxable income. This means you’ll pay much less capital gains tax (CGT) than usual if you sell.

Unfortunately, as investors, we often lack the patience required in this business, and take a short-term view, instead of looking at the bigger picture.

This can lead to a decision to sell an investment property that we may ultimately regret.

For example, selling a property because the market is stagnant could be based on the false assumption that the market won’t recover.

Some of the saddest investor stories we’ve heard over the years is from people that sold their properties when they didn’t really need to. These investors actually let go of valuable assets, based on flawed logic or an emotional reaction.

They may have sold their investment property to buy another investment, not realising that they could have used equity and borrowed to buy their next investment, while still holding onto the existing investment property/ies.

Perhaps they got spooked by sensational media reports or took the wrong advice from the wrong person.

It’s such a shame to hear these stories, because often the investment property was not causing any cash flow issues and it subsequently increased in value substantially after it was sold.

At the end of the day, every investor is different, with their own unique situation, financial goals and exit strategies.

If you would like us to help you decide on whether to keep or sell your investment property, please feel free to get in touch with us, as we are experienced QPIA qualified property investment advisers.

Talk soon.

Feel free to call us for a chat on 1300 077 766 or email us on info@adviseable.com.au
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