How to know when to sell an investment property

With mortgage deferrals expiring and thousands still reeling from the coronavirus pandemic, many investors are considering selling their investment properties.

Investment property discussion
Many Australians are weighing up the pros and cons of selling their investment properties as we move out of the pandemic. Photo: Shutterstock (Image source:

With mortgage deferrals expiring and thousands still reeling from the coronavirus pandemic, many investors are considering selling their investment properties.

It’s a question I’ve been asked a lot, from all sorts of investors, and even pre-pandemic. But as we move towards the end of 2020, ‘should I sell my investment property’ has become one of the most-repeated questions among property investors.

I have been investing for almost 10 years, I have 17 properties in my portfolio and have been able to help a lot of other investors build their portfolios too. 

And, the answer is generally ‘No’. 

There are of course a couple of exceptions, and hence it may not be a straightforward answer for everyone, but unless your particular circumstances say otherwise, the general answer is still ‘No’.

Why shouldn’t I sell?

If you have picked the correct location, your investment property is absolutely going to double every 10 years, that means in 20 years it will quadruple. So, the longer you hold this asset over time, the compounding effect is extremely powerful. So why would you sell it, right?

It's not about it being a pretty good property, but wanting to let it go to get into another property or even a better property, or think you'll put that money into something else. I think that's a mistake. 

You want to hold that property. If you've got a good property and the cash flow is good and if it is in a good location for long term sustainable capital growth, it's absolute madness to sell it only to then have to pay tax plus all the selling costs as well.

Keep that thing, let it grow, let it just sit there and create long term wealth. If you need more money for something else in your life - go out and make more money - but remember that your property portfolio is there for the long term.

Now there are exceptions to this rule, one is, if you have bought a dud. Then, get rid of it - sell it. 

What is a dud?

This is a property that you may have bought in the absolute incorrect location or it is costing you in more ways than one. Let me explain. 

If you have bought a property in an area that has got hardly any population growth, probably an area that's outside of the eastern seaboard and it's probably an area outside of a capital city or a major regional area. 

If it is not in these areas you're not going to have long term sustainable population growth which means you will not have long term sustainable capital growth. 

The other reason why you should sell is if it has too severe a negative cash flow. If you're holding a property even though it may have pretty good growth if you're holding it over time, but if the property is draining money out of your bank account, draining money out of your salary and income. 

If it is costing you a huge amount of money to hold it, then that's not good because you're actually losing money and reducing your lending capacity. It’s holding you back from further investing, so it is a double whammy effect.

When you are building a portfolio, you need access to money - meaning lending. As you know, you need to loan more money to buy more assets to grow more wealth. So, this is the reason why you may want to sell such an investment property.

Don’t sell unless…

Other than that, there is only one other time when you want to sell, and that is when you reach what is called the ‘consolidation stage’.

See, when you start investing you've got the ‘accumulation phase’ where you're building up your assets and typically it is a time you are highly leveraged, you are taking on a lot of debt to buy more properties. 

That’s why you might sell a property that is holding you back in order to take on more debt to build up your asset base. At some point, you may want to wipe away all of your debt and hold less assets that are debt free in order to live off the cash flow. When you do that, it's called the consolidation stage.

Let me give you an example, if you go through your accumulation phase and you build up 10 properties on all of which you're carrying debt on. Now you want to wipe away all of the debt that you've got and the best way to do that is to sell some of the assets, get some of the profits from some of those assets and use those profits to pay down the debt on the remaining assets.

So, if you got 10 properties you may need to sell four or five or six of them to get enough profit to wipe away the debt on the remaining 4, 5, or 6 properties. 

That would mean you sell some, say around about half to pay down the debt on the remaining properties. Now have about five properties debt free – absolutely no debt which suddenly enhances your cash flow on those remaining five. But you only want to do this at the end of your accumulation phase.

The Right Advice

Other than these two exceptions, you basically should not sell your investment properties.

You ask anyone that had three or four properties 20 years ago and sold a few because they wanted to buy a boat or sold a few because they wanted a nicer home to live in – and you know what - they always regret it. 

Because, now they look back and go ‘Gees, if I had kept it, I would have made all of this money’. Of course, there are some factors specific to you and your circumstances and it is best to talk to experienced people in this field to get advice on what are your best moves, especially when it comes to deciding if or which property you are selling.  

By the way, your advice should not come from an average accountant or a real estate agent or just anyone with an opinion and no evidence. 

A good way to check if you are talking to or better listening to the right person is to ask them about their own portfolio. If they don’t hold a portfolio of property investments, have built wealth through property, then they are probably not the right person to take advice from.

So, generally, the rule of thumb is to not sell your property, the exceptions are; #1 when you have got a dud, and exception #2 when you want to consolidate down your portfolio.

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