This is a question we are often asked as property managers and something that most property owners will consider at some point. The answer will obviously depend on what your longer term objectives, but here are some things to consider when making your decision.
Is cash flow an issue?
Some investors decide to sell an investment property because it’s a drain on cash flow. Perhaps you’re in a period of receiving low rent, you’re locked into a higher fixed rate and expenses (like rates and body corporate fees) have increased. It’s getting harder to meet the monthly out-of-pocket costs associated with your property.
There are some things to help with this, if you are keen to hold on to the property –
- See if there is any possibility of increasing your rent (this might be something you can’t do anything about right now, but something to keep in mind).
- Talk to a mortgage professional to see if there is anything you can do to reduce your interest costs. There are lots of things that can be done, but you might need some help to make sure you’re taking advantage of all the options available.
- Talk to your accountant about getting a Tax Variation form in place with your employer. This means you’ll pay less tax throughout the year, to counteract any refund you may have received as a result of your investment property. This means you get the money each fortnight (helping with cash flow) instead of a lump sum once your tax return has been finalised.
- Talk to your accountant to check that you are claiming everything you can, in order to boost your tax benefits.
- See if you can reduce your costs. You should periodically review your Landlords Insurance premiums to ensure you are still getting the best deal.
Are you focusing on the right things?
Unfortunately, investors sometimes end up selling a good investment property at the wrong time, simply because they’ve had a bad run with particular tenants or a string of maintenance expenses. This can happen with an investment property from time to time and it’s important to keep sight of the bigger picture, rather than get bogged down with day-to-day issues.
It’s also where a property manager can help. If you’re not personally dealing with the issues on a daily basis, it might be easier to focus on your long term reasons for holding investment property – i.e. rental income, capital growth, the tax advantages.
What do you intend to do with the proceeds?
Once the sale costs have been considered as well as any capital gains tax implications, what do you plan to do with the proceeds from the sale?
Some investors decide to sell a property without any clear idea of what they will do with the resulting cash. Whilst there is absolutely nothing wrong with this, if a large amount of cash is going to sit in a low interest earning account for a year until you know what to do with it, you might have been better off to delay the sale while the property *hopefully* increases in price.
Of course, if we knew in advance what property prices were going to do, we’d always be able to sell at exactly ‘the right time.’
Is it the time right?
Unfortunately you won’t know if it was the right time to sell until after the sale has happened. You can arm yourself with lots of property market research and talk to as many different experts as possible, but it’s more important that the time is right for YOU. For example, you feel you’ve made sufficient gain from holding onto the property up until now and you have a clear reason for selling.