Things you should know when selling your investment property

The majority of investors get into the game for one reason: to grow their wealth. But what happens when an investment's prospects run dry – or you need access to the wealth you've built? 

That's when it might be time to sell.

Knowing when to sell can be just as important – if not more so – than knowing the right time to buy. If your gut or your circumstances are telling you it's time to sell, don't ignore the signs.

But selling an investment property isn't simple. It's a significant financial decision with lasting consequences.

By understanding the timing, tax implications, market conditions, and your future goals, you can turn a complex process into a strategic move that supports your long-term financial wellbeing.

When is the right time to sell an investment property?

Timing is everything in property investing. If you're wondering whether now's the right time to sell, ask yourself the following questions:

1. Do I believe the property's value will significantly increase in the near future?

Patience is a virtue, and property investing is often a long-term game. It can take years – sometimes decades – for a property's value to meaningfully increase. In some cases, it may never see much appreciation at all.

If you've held your property for a while now with little return, but still have confidence in its long-term potential, it might be worth holding on. You could even shift it to the proverbial back of your portfolio so it's not top of mind.

2. Is the property costing me more to hold than I can reasonably afford?

Sometimes the decision to sell is purely financial. If the ongoing holding costs – mortgage repayments, maintenance, insurance, council rates – are outweighing the rental income and future upside, it might be time to let go. Though, it might be worth first considering if you can reduce such costs, perhaps by refinancing to a lower-rate mortgage. Here are some of the best offers on the market right now:

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3. What would I do with the equity I've built in the property if I were to sell?

Selling with a plan is always smarter than selling on a whim. Think carefully about how you'd use the freed-up equity.

Using the proceeds to fund short-term luxuries – like a holiday or new car – might not be a strong financial move. But using the funds to upgrade your primary residence, invest in education, or buy another asset could make strategic sense.

4. Does selling this property align with my long-term financial goals?

Ultimately, any decision to sell should be guided by your long-term financial goals. Will selling help you retire early? Free up capital for a passive income strategy? Or make it possible to buy your dream home?

If the sale is likely to set you back or derail your goals, it may be worth holding off – at least for now.

What to consider when selling an investment property

Selling an investment property isn't a set-and-forget task. There are numerous factors at play that can affect how smoothly the sale goes, how much profit you walk away with, and how it impacts your broader financial position. Strategic planning, smart timing, and a clear understanding of your obligations can make a significant difference to both your sale price and post-sale financial outcomes.

Here are some of the most important things to consider:

1. The condition and presentation of the property

First impressions count. Even if your property is an investment, it still needs to appeal to buyers – whether they're future landlords or owner-occupiers. That might mean making minor repairs, applying a fresh coat of paint, tidying the garden, or even staging the property for open homes.

Spending a little upfront to improve presentation can help you realise a higher sale price and reduce the time the property spends on the market.

2. Tenanted vs vacant: which is better for selling?

Selling a property with tenants in place can be a double-edged sword:

• Pros: You have rental income coming in while the property is on the market, and the buyer may be another investor who values a tenanted property.

• Cons: Your tenant must legally be given notice before inspections, which has the potential to slow down the sales process. Having tenants in place could also deter buyers who want to move in immediately.

If your property is one that's likely to continue being an investment rather than an owner-occupier home – it might be in a high-density apartment complex or a location popular with renters, for example – selling with quality tenants in place could be a good idea. Investors often appreciate the immediate rental income and a stable lease, and it can streamline the handover process.

On the other hand, if the lease is coming to an end and you're preparing to sell, it may be worth allowing the agreement to expire and listing the property vacant. A vacant home tends to attract more owner-occupier interest and can make the sales process more flexible.

It's also worth acknowledging that ending a tenancy without a pressing reason can leave tenants in a major lurch – especially in a tight rental market. While it may be within your legal rights, the potential financial benefits should be weighed thoughtfully against the human impact.

3. Market conditions and timing

Timing your sale with the market can make a big difference. A seller's market – characterised by high demand and low supply – can push prices up. A buyer's market, meanwhile, may require flexibility on price and longer selling periods.

Also consider:

• Local comparable sales

• Interest rate movements

• Seasonal trends (spring and early summer are often peak selling times)

Additionally, if your suburb has major upgrades in the pipeline – like a new school or train station – it could be worth holding off until works are completed to maximise value.

Speak with agents who specialise in investment properties in your area for tailored insights.

4. Selling costs and agent commissions

There are various costs involved with selling a property, including:

• Real estate agent commission

• Advertising and marketing costs

• Legal or conveyancing fees

• Potential early exit fees if you have a fixed rate mortgage

• Capital Gains Tax (CGT)

Understanding these costs upfront ensures there are no nasty surprises and lets you work out how much you'll actually pocket after the sale.

It could also be worth considering how much you paid in stamp duty, transaction fees, and lenders mortgage insurance (LMI) (if applicable) when you purchased. After crunching the numbers, you might find your investment's performance is below par.

5. Your future investment strategy

Your exit should support your long-term wealth plan. Before listing, ask:

• Is this sale helping me reduce risk or debt?

• Am I freeing up capital to reinvest in a better-performing asset?

• Could I use the money for another strategic move (e.g. downsizing, upgrading, or diversifying)?

The clearer your 'why,' the better your 'what next' will be.

Tax implications of selling an investment property

No matter what happens when you sell your investment property, there'll likely be a tax implication. If you make a profit, the Australian Taxation Office (ATO) will want a slice and if you make a loss, you might be able to reduce the tax you pay in the future.

If you sell for a profit – known as a capital gain – you'll likely face CGT. That means the profit you realise will be added onto your regular taxable income and you'll pay tax at the appropriate rate on the lot. Though, there are CGT discounts.

CGT discount

If you've owned the property for at least 12 months before selling, you're generally entitled to a 50% CGT discount as an individual taxpayer. This means only half of your capital gain is added to your taxable income.

The six-year rule (temporary absence rule)

If the property was originally your principal place of residence (PPOR) and you moved out and began renting it, you may still be eligible for a full CGT exemption under the six-year rule.

This rule allows you to treat the property as your main residence for CGT purposes for up to six years after you've moved out – even if you're earning rental income – as long as you don't own another property that you're treating as your main residence during that time.

Capital losses

If you sell the property for less than your cost base (original purchase price plus associated costs like legal fees, stamp duty, and capital improvements), you'll incur a capital loss. You can't claim this loss against your regular income, but you can carry it forward indefinitely to offset future capital gains.

For example, if you sell another asset down the track and make a capital gain, your carried-forward capital loss can reduce the amount of tax you need to pay on that gain.

What to do before selling your investment property

Once you've decided it's time to sell, a few key steps can help you prepare (and avoid costly mistakes):

1. Review your lease agreement

Check whether your tenants are on a fixed-term or periodic lease. This will determine what kind of notice you can give (and when) and whether you can sell the property vacant or tenanted. If needed, get the input of your property manager or the relevant tenancy authority.

2. Notify your property manager

Let your property manager know your plans as early as possible. They'll liaise with the tenants, coordinate inspections, and ensure legal requirements (like entry notices and consent for photographs) are met. If your property manager also handles sales, you might be able to streamline the process.

3. Speak with your accountant and/or financial planner

A tax professional can help you calculate your potential liability, explore timing strategies, and confirm any exemptions or deductions you're eligible for. Meanwhile, a financial planner can advise you on how to reinvest the proceeds to support your long-term financial goals.

4. Get a property appraisal

Contact a few local agents (ideally those with experience selling investment properties) to get a sense of your property's current market value. They can also help you decide whether to sell tenanted or vacant, based on likely buyer demand.

5. Line up your documentation

You'll likely want to organise:

• Lease agreements and rental history

• Recent property maintenance and improvement records

• Depreciation schedules

• Original purchase documents (for CGT purposes)

Having this info ready can make your life easier when working with agents, accountants, and solicitors.

6. Consider your next move

What will you do with the proceeds from the sale? Reinvest in another property? Pay off debt? Boost your super? Locking in your post-sale plan before you sell helps ensure your decision supports your broader financial goals.

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