Selling investment property

5 min read | 27 Jun 2022

Property investing is about making money. The challenge for many, no matter how experienced you are, is confidently making that final call on when to sell. Here are our top tips about knowing whether you should sell your investment property, and some factors to consider before getting ready to sell your investment home.

There are typically two types of property investors:

1. Exit plan – before they buy, they make a plan for what they need the investment to do, how much money they want to make, and the circumstance(s) in which they’ll sell.

2. No exit plan – they may have jumped in because it felt right, and they had enough savings or equity to pay the deposit and purchase costs.

Neither ‘type’ is right nor wrong. When it comes to selling, your final decision will be influenced by a range of factors – some of which you can control and plan for, and others you can’t.

Ask yourself these questions to help you decide.

Property goes in cycles, and most people will tell you to play it by the formula – sell in a boom, buy again at the bottom of the market, and repeat. That’s your perfect world scenario.

But there are many factors that influence the cycle, including local issues like new developments or environmental impacts, and macro issues like economic downturns and employment rates. Your location could also influence the cycle – Perth for example is driven by natural resource availability and the fly/in fly out nature of the population, and Canberra is impacted by changes of government.

Many people make the assumption that you deduct what you paid for your investment from its current value to get your profit. But don’t forget the year-on-year costs. The negative gearing and CGT benefits only help with some, not all, of your investment expenses. And no matter what the armchair experts say, properties don’t double in price every ‘X’ years. It’s a cycle.

• If you’ve owned for less than 12 months and make a profit, you won’t be eligible for the capital gains discount.

• Some say the rule of thumb is to keep it to the 10-year mark or so before selling.

• If you’ve only owned it for a short time, chances are you’ll experience very limited capital growth.

You’re an investor, not a homeowner. If another property crops up that could give you bigger bang for buck than your current place, weigh up your options. It’s a good idea to be thinking about better ways to use your money to create wealth.

Just remember that if you do buy again, you need to factor in costs like the deposit, stamp duties, legal fees, agent commissions and council rates.

Here’s the deal with holiday homes. Tenants are seasonal, properties can sit vacant for quite some time, and you might prefer using it in peak season (which means you miss out on high rents).

The jury is fairly ‘in’ on this one. If you’re making a loss you can’t afford, it could be time to let it go.

Not all property investments go according to plan, and this could be for any number of reasons.

• If the property’s value and rental yield aren’t what you need to stay on track, it might be better to cut your losses.

• If you hold out for too long or wait for a boom that may never come, your capital margin could keep going down.

What if you sold and bought somewhere else? You could potentially make that money back in equity within a year or two. Plus, you may be able to offset or carry over the capital loss.

Life can get in the way sometimes. Whether that’s because you have a new addition to the family, or you become unwell, or are made redundant. Before panic selling, you may want to speak to a financial advisor about your situation. If your property is doing well, you might be able to explore other options.

Talk to your lender, too. If you aren’t already doing this, you could move to an interest-only loan and make lower repayments, or you could apply for financial hardship and pause repayments for a time. Or you could switch lenders altogether for a better deal with lower repayments.

Think laterally. Could you:

• Renovate/extend, like adding a backyard studio (just don’t overcapitalise)?

• Subdivide and sell a portion?

• Subdivide and build and sell?

On the last two, you could be subject to capital gains tax (CGT), always check with the tax experts!

• Do you have kids that you need to pay for schooling or university, or for a leg-up on a deposit of their own?

• Are you buying another investment property?

• The market is looking good or maybe it isn’t, but you want to cut your losses before they become larger

• It’s clean and presentable, including windows

• No cracked walls, dripping taps or peeling paint

• You’ve completed any micro renos within your budget to boost appeal

• Accountant – they can make sure the beans are in the right columns

• Conveyancer or solicitor – to keep your legals in check

• Financial adviser and/or property mentor – an expert you can discuss all the options with

• Real estate agent – someone with expertise in your area and property style, preferably without a too-pricey commission

• Lender – if you’re buying again, it might be time to refinance to a better deal

• Yourself – you’re the ultimate driver; you call the shots!

There’s a lot to think about. If you’ve held onto an investment property and think it’s served its purpose and the market is at its peak, it could be time to let it go. You can read about negative and positive gearing, which could help you make a decision, here.

And lastly, if you’re thinking about reinvesting, be sure to check Athena’s rates and home loan hacks. Every penny counts for investors. Markets move, tenants may come and go.

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