A common property investing rule-of-thumb is that you should “buy property and never sell”.
That’s because property prices always trend higher over time which means you benefit from compounding capital growth.
Of course, the rule-of-thumb should be adjusted to include “buy quality property and never sell” to ensure you maximize investment returns.
But the reality is, that sometimes the smartest thing to do is to sell a property, even if it is a quality asset if it helps you move forward towards achieving your goals.
So, in today’s show, I chat with independent financial adviser Stuart Wemyss and discuss how to decide if your investment property is a dud and you should sell it, or even if your property is performing well what are the common scenarios where we would recommend you sell your property.
When should you sell an investment property?
A lot of people think my investment philosophy is to buy and never sell property.
But that's not actually true.
My philosophy is to buy and seldom sell.
Sure, you make your best returns by buying quality assets and holding them for the long term, but sometimes circumstances dictate that is better to sell than to hold onto a property.
So how do you know when it's the right time to sell?
How bad does an investment have to be before you should consider selling up?
That's what I'm going to ask my regular guest and independent financial advisor Stuart Wemyss.
I find it interesting that many investors seem to have sold up their properties over the last year during the property boom enticed by the strong capital growth they achieved, which is counterintuitive to me because their properties are performing well.
Their properties are doing exactly what they hoped they would do.
On the other hand, I've seen some emotionally involved investors hold on to dud properties in vain, hoping that their performance will improve.
- How bad does an investment property need to be to warrant selling it?
- Why would you sell if your property is a really good asset and there’s no reason to sell? Review your property: what did I expect, and did it measure up? Is the problem an asset issue or a market-wide issue? If it’s a market issue, it might be smarter just to wait it out.
- What costs of buying and selling would you have to take into account before making the decision?
- Selling is neither riskless nor costless. There’s the opportunity cost. You don’t want to sell a property for half a million and see it sold later for a million. Take into account agent fees, getting it ready to sell, capital gains tax, and costs associated with replacing that asset.
- What other factors do you need to consider?
- Why are you selling in the first place? Just underperformance or other reasons? Borrowing capacity is a scarce asset, not the investment-grade property
- What are the common scenarios where you have recommended a client should sell a property?
- Poor investment returns
- take a profit to invest in better opportunities
- property upgrade - particularly at home
Links and Resources:
Stuart’s Books – Rules of the Lending Game & Investopoly
Get you a bundle of free eBooks and reports www.PodcastBonus.com.au
Some of our favourite quotes from the show:
“Well, I think that it’s important to annually review your property portfolio’s performance, and really with somebody outside, somebody independent.” – Michael Yardney
“The best way to do this is not with gut feel, not with gut reaction, but actually to run numbers and figures.” – Michael Yardney
“You can be passionate about something and still take little action.” – Michael Yardney
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