Should you sell or hold your investment property?

With current property prices reaching record highs you may well be asking yourself, is now the time to sell or hold your investment property? 

It can be a tough call to make as holding onto an underperforming property could end up costing you money in the long run. At the same time if you sell you could catch the peak of the market and maximise your ROI – and avoid a looming slump. 

Any property market is tough to read, just think back to the doomsayers who predicted that the housing market was going to drop 30% or more during 2020 in the early days of the pandemic. Instead the reverse has been true, with data from property analysts CoreLogic indicating that Aussie dwelling values have advanced +10.6% for the year to date (YTD). This includes regional markets which have outpaced capital cities, up +15.2% for the YTD. 

Let’s now look at each scenario – hold and sell, and what factors should drive your decision in each case. 

When you should hold your investment property

If you meet these criteria, you should probably hold off selling.  

1. You can afford to keep it

If holding your investment property causes you no financial distress then the obvious thing to do is hold it. Your tenants rent could cover the mortgage repayments, meaning you are not out of pocket, and are positively geared. You may also have owned it long enough for the mortgage repayments to be affordable, or you may even have paid it off completely. 

2. The property is appreciating in value and earning

This may seem obvious but if your property is ticking away nicely, particularly if it is positively geared – then you should by all means stand back and allow capital growth to do it’s thing. This is especially true if you have no trouble finding tenants, or have long term tenants who you are happy with. 

3. You bought the property less than 5 years ago

It takes time for capital growth to accrue, so if you bought your investment property less than five years ago you should hold. Why? There are significant costs associated with selling (and buying) – including real estate agent commissions, conveyancing and advertising to name a few. This timeframe is also generally not enough for capital growth to have accrued, to offset these costs – depending on the local market of course. A rule of thumb is that a city market needs anywhere from seven to 10 years to make selling worthwhile. 

When you should sell your investment property

If you meet these criteria, it could be time to sell.

1. Stagnant or declining market

A market that is stagnant or declining is pretty obvious as prices are either flat or there is negative growth. Vacancy rates will also start to rise. This can happen to an area if planned infrastructure is delayed or cancelled, reducing the appeal of the suburb for tenants and investors alike. Certain properties could also go out of fashion – like the current flight from high density, off the plan properties.

2. Your personal circumstances have changed

Lost your job? Got divorced? Just taken a pay cut? All these scenarios and whatever else life could throw at you means you sometimes have to cut your losses and sell up. This could allow you to sort out your financial affairs or take the pressure off until you are earning more. 

3. The property is costing you money

If your investment property is negatively geared – meaning it costs you money to keep it, selling could ease this financial pressure. This is of course dependent on your personal circumstances – but if you simply can’t afford it, then it makes perfect sense to sell. This decision should also be made after assessing the potential of the local market, and how likely it is to stage a recovery.

4. The market is hot

If the market is running red hot and you have held your investment property for long enough to turn a tidy profit: sell! The last thing you want to do is miss out on a market peak, and what is worse than FOMO: the fear of missing out. 

Thinking of selling to take advantage of current house price growth? Then get in touch with Ash Frenken (CEO & Principal) at propper on 0409 397 173 or ash@propper.com.au for a no obligation appraisal and expert advice about your circumstances.

*This article is not intended as financial advice. You should seek professional advice specific to your situation before making any decisions about your financial affairs. 

Ash Frenken

About Ash Frenken

An inspired entrepreneur with a vision to drive change in the Property Management industry.

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