Thursday, January 14, 2016 / Property Investment, Real Estate
There is the age old adage of many property investors that you should “always buy and never sell”, however this does not always make the most sense.
Whilst it is true that consistently adding to your portfolio will help you generate better wealth in the future, the entire endeavour also requires that eventually some of these value increases are actually realised.
We thought we would write up a comprehensive list of times in which you may decide to sell an investment property:
Many property investors get into the game so that they are able to enjoy a more comfortable lifestyle in their retirement. It therefore makes perfect sense that when retirement finally comes around, that this may be the time that you decide to turn those assets into liquid finances that are easier to access.
Many investors will sell off their portfolio slowly, as their retirement continues. This is more favourable than selling your entire portfolio the moment you retire, as you will still be getting value growth on the properties that you are holding throughout your retirement.
This may seem like a bit of an obvious point to make, that you should sell when the property is at its highest value, not when it is at its lowest.
However, it is still worth noting. Psychologically speaking people are very susceptible to ‘fear selling’, a process in which they see values dropping and think that they should get out now before the values drop even further.
This happens at the beginning of the downturn when an economic bubble collapses (such as the first economic bubble, that of the tulip).
Likewise, when you see that your investment is gaining in value and growing consistently; there is always the temptation to keep holding and then seeing how far it will potentially climb.
So even though the goal of investing is to purchase the property, hold it until it gains in value and then sell it to realise the gains; we can trick ourselves into acting in the opposite way!
Part of the fear aspect is never truly knowing what the future will hold, will the price keep plummeting or is it going to keep surging?
The most important thing to remember in this regard, is do not be a victim to fear based selling, do not sell just because there has been a small drop. Your decisions need to be based upon your sound investment strategy and a more conscious awareness of market trends, not an emotional reaction.
When you are holding a property, there are always going to be costs associated with keeping the maintenance up to scratch for your tenants. These are unavoidable. Even the best property manager can not keep the maintenance costs down indefinitely.
However, as the home begins to show its age a little more, you start to find that the calls to tradesman and other maintenance providers, are starting to increase in frequency.
You will be doing no favours to yourself if you keep pouring money into a degenerating building which is not even going to be the centre point for the final value when you do sell.
You need to calculate your own figure at which you decide that the maintenance costs are becoming too high for the property to be worth holding.
This is especially true if your property has recently turned (or is about to ) 40 years old, as this is the end of being able to claim any depreciation of an asset against your income tax!
The goal of investing in property is to make a small sacrifice in the now, to better provide for the future. However, it should be just that, a SMALL SACRIFICE.
If your investment property means you are finding that you are finding yourself unable to actively enjoy your life, having to skip coffees with friends, or being more prudent with your groceries etc, then there is a good chance that you need to reconsider the investment.
If for example you have a reasonably high cost negatively geared property, one in which you thought “I can keep making these payments”, but are now finding that the cost is starting to encroach more and more frequently, then you may be better off finding a cheaper investment property that will have less active cash requirements in the holding process.
Your investment strategy probably has a good balance of negatively geared high growth properties, and positively geared high rental yield properties and so on.
Depending on what your goals are and what strategy you are working towards you will have set this out very differently to many other portfolios.
You may however find yourself deciding to switch up your investment strategy a little, and alter the balance of negatively geared properties and positively geared properties.
Tuning and adjusting this portfolio is all part of the investment lifestyle!
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