Timing the sale of an investment property

By Bill Tsouvalas

When is the right time to sell an investment property?

As a property investor, buying a home that will see you make great returns on your investment is essential. However, you also need to know the right time to sell your property.

Selling a property that is no longer turning out a profit relies on the right timing. We have compiled five signs that will let you know when it’s time to sell your property.

1. Is it a seasonal thing?

Many people assume that the best time to sell property is in spring, when all is bright and offers a fresh start. This is not necessarily true as there are many factors that contribute to the sale of the house. These include the location of the house (is it in a tourist spot or the suburbs?), or whether it attracts loud events during a particular time of the year. You can get one up by selling your property during the traditionally quiet times of the year when most sellers are off on holiday. This will also give your property time to shine in a smaller pool of houses, rather than it getting lost in the noise of the house selling season.

2. When it’s becoming more of a liability than an asset

You could have invested in a property a while back, but when it came to reviewing time you realised that the property is eating its way into your funds. When initially buying your property, you took into consideration the holding costs, land tax, income tax, as well as your entry and exit costs. Another factor you need to consider is the opportunity costs. When the time arises do you sell your property or continue to keep it?

Let’s say you bought a property at $300,000 and experience 5% growth p.a. over the next two years. However, you let the opportunity of buying a property that experiences 10% growth p.a. slip through your fingers. Holding onto a property that doesn’t make you see returns in investment can also be expensive. If you are not sure whether to sell your property or not, it is advisable to speak to an accredited financial advisor to help you figure out the situation.

3. Sell when the marginal tax rate is low

Property investment is also about being smart in terms of when to cash in with certain law binding practices. When you have decided to sell, do it when the marginal tax rate is low. The reason for this is that it will help people who are in retirement or maternity leave incur less Capital Gains Tax. Capital Gains Tax is a tax that is levied on the profits you make when you dispose of an asset. If you have already built a sizeable property portfolio, it is advisable to sell one property a year.

4. Pay off your accumulated debt early so you can enjoy your investment

This will depend on the situation that you are in, and might not work for everyone. However, paying off the debt you have accumulated to build a property investment portfolio earlier can see you enjoying the gains on your capital better. You could be in the transition phase, where the level of your debt stays the same and you are still experiencing capital growth on your investment, but you are looking to sell. It’s advisable to pay off the debt you’ve acquired while you are still in the transition phase, so by the time you reach the withdrawal phase you will have a cash flow positive portfolio – therefore decreasing your chances of being forced to sell off assets to repay the accumulated debt.

5. Avoid selling your property in a panic

When you are selling your property, you want to strategise smartly, instead of selling in a panic that will leave you with regret. It is essential that before taking out a home loan to cover your expenses you look at what is required of you financially. Run the numbers in terms of how much you expect in terms of growth vs the cost. It is always good to view this in a sober state of mind so that you will know whether it is worth the expense.

 


Bill Tsouvalas is founder and managing director at Savvy Finance. He has a been working in the vehicle & asset finance business for over 8 years. He also writes articles on car finance, chattel mortgage, insurance, consumer protection and insurance related topics. 

For further information,  visit www.savvy.com.au or call 1300 974 066