The best time to sell your investment property
The best time to sell your investment property
Property investment is a long-term dedication. Often, it’s the first port of call for Australians looking to build a portfolio of wealth. But it’s a commitment that should be invested in for the long haul and that commitment takes time, effort and money to be successful.
Only 18% of the 2 million property investors in Australia manage to invest in two or more properties. The biggest reasons for failure can include anything from impatience, poor deals, tight cashflow or not investing in enough time and education.
If you own an investment property and are wondering whether you should sell now or later, unfortunately, there is no easy answer or one solution fits all. Every investment is different. The good news is, with the right property advice and tools, you can be in a better position to gauge the best time for you and understand what factors should be taken into consideration when deciding. So, what’s the right call – sell or hold, cash out or stay invested? Here are a few points to consider:
Every decision you make regarding your investment property must be aligned with your initial goals. If you’re considering selling, it’s important to think back to the overall mission of the property portfolio and ensure your decision reflects this. Was your principal goal to generate income or accumulate wealth? If it was both, you want to shift your focus to the key purpose to help dictate your next move.
Property investments purchase to meet income goals must be replaced with a proper plan in mind. Liquidating an income-producing asset, without a means of replacing it with a better producing asset, is counterproductive. Not to mention, it will leave a huge financial hole begging to be filled. If your principal goal is to accumulate wealth however, selling an investment property to lock in equity gains makes financial sense.
Selling vs. Holding
There are multiple factors that come into play, aside from your principal goal, to determine whether it’s better you sell or hold. Some of these can include, but are not limited to:
1. Market Conditions
If you invested some years ago and the market is going strong with high returns, looking to sell can be a smart move to gain considerable profits. If the market is in a downturn, you may wish to hold on until things stabilise or improve. It’s vital that you keep your finger on the pulse when it comes to your property investment. Stay up-to-date with what’s happening in the market to get a clear idea of good vs. bad timing. You want to weigh up the conditions of the local market where your property is located, as well as the wider market too. Before you sell, ask yourself whether it’s a seller’s market or a buyer’s market.
2. Financial Pressure
One of the biggest pitfalls of property investment is selling because you’re under financial pressure. Stress can negatively influence your decision. Disrupted cashflow, a change in life circumstances or an influx of unexpected costs that leave you high and dry can lead to poor investment decisions. Instead, determine whether these short-term burdens can be alleviated through budget adjustments or refinancing loans. Selling your property may seem like the best quick-fix option, but if driven by financial pressure, it could leave you in a worse off financial situation.
3. Meeting Long-Term Investment Criteria
The buy-and-hold strategy is a smart way to yield both short-term gains and long-term value. To capture the capital growth of your investment property, your asset must meet the long-term investment criteria to reap the rewards. Consider both the macro and micro factors – population growth and employment opportunities in the property’s location, and its demographics and local amenities, to determine how your property is performing.
4. What’s the Magical Number?
According to CoreLogic, homes that resold at a loss had a typical length of ownership of 6.1 years for houses and 6.5 years for units. But for those which sold at a gross profit, the length of ownership was recorded at 9.1 years for houses and 7.6 years for units. Taking all factors into consideration – and of course, your key goal for investing in the property – it pays to hold on for a longer period of time in order to access the biggest financial rewards.
The most successful property investments are made for the long haul, but it’s a delicate balance between a number of factors and timing to determine your best selling point. Keep a close eye on the market, calculate your equity carefully and have a clear estimate for capital growth before making a final decision.