YOUR WEEKLY MONEY DILEMMA
Should I sell my investment property!?
Oh, this is such a small yet big question!
The answer in my world, without giving you personal advice is: It depends.
But here are some things to consider before you take your next step:
Why did you buy the property?
Buying a property is no small undertaking. Most people spend a lot of time weighing up all their options before they sign the dotted line. What made you want to get it in the first place?
Was it because you were sick of heading to family events and everyone chastising you about not being ‘on the ladder’... was it because you wanted to have a long-term income stream or the potential to live in it in the future? Was it that you wanted to build equity for wealth creation? Give some good thought as to why you bought it.
Most people buy investment properties for shiny bright hope of Capital Growth (that means, the value of the property increases over time), rather than for Income (that is for the rental return also known as yield).
Australia has one of the highest property valuations globally. So, it's likely new investors will take on a bucketload of debt for a small rental return, in the hope of the growth outweighing the sacrifices of the mortgage gap in the long run.
It is very common for investment properties to be negatively geared right now (thanks to purchase prices being high and interest rates going up!).
As a general rule of thumb, Capital Cities tend to have higher growth but lower yield. Some Regional areas may offer higher yield (even positively geared properties), but tend to have historically lower growth.
How does it fit into your bigger picture?
When considering selling an investment property a big question to consider is ‘What am I trading off to have this?’
Most of us are constantly juggling competing priorities and trade-offs. If you are trading off something that is far more important to you, then perhaps selling makes sense to allow you to prioritise other goals.
Is the property any good?
Property should always be considered a long-term investment. Going into it thinking you can put fresh carpet and new paint and sell it for a motser rarely works (never say never though).
I generally recommend buying property with the view that you will keep it for a long period of time – both because of historical growth trends, but also because transaction costs are so high it can take a long time just to get those back. Here are some other things to review:
- What is the historical growth of your suburb?
- What about vacancy rates? Average rent and recent sales?
- Are there plans for development in and around your suburb that will make it attractive for tenants in the future? New infrastructure developments, transit options or job opportunities?
- Is your property fundamentally good?
Does it have major issues or defects that will be a huge cost to rectify in the future (noting, it is always normal to have to do upgrades and repairs in the first few years if the last owners didn’t maintain it well. A good property inspector should make you aware of what is needed before you buy).
- Can you afford it?
Whilst the major banks are indeed expecting a few more rate rises (joy), they actually think they will then reduce over the next 12 months (hooray!). You can read more about their predictions on this here.
A lot of online calculators (and some Buyers Agents tbh), show you the net cost impact of the property once all the tax deductions come into play, but you need to pay them as you go and don’t get the tax benefits until tax time rolls around.
Therefore, my friend, if you know you can’t afford anymore hikes...selling before you are desperate and in a tight spot is always advised so you don’t panic sell to the first interested party for below market value.
Selling any asset is something that needs to be well thought through.
When you buy something, you have a tax position... and when you sell it you either have a Capital Gain (meaning you sold it for more than you bought it for) or a Capital Loss (you sold it for lower than your purchase price). You can read more about both of them including offsets and discounts here.
It shouldn’t be a decision you make panicked and sobbing into your tea as you watch Mr Lowe announce another rate rise... you should take as much time considering your options around selling as you did when buying.
Good luck!
I have something exciting to share with you all next week. Stay tuned...
Have a money dilemma?
Money dilemmas can be a nightmare! They can leave you up all night ruminating about what to do, have you feeling alone and isolated or just plain ol' stuck. So, we are here to help. I am going to tackle one a week and give you my unbiased, no BS general thoughts on how to tackle your conundrum. We would love for you to send yours (or someone you know) in.
Obvs all of this is general advice only... especially important to note any and all of the comments above do not take into account your objectives, financial situation or needs. Before acting on any information, you should consider the appropriateness of the information provided and the nature of the relevant financial product having regard to your objectives, financial situation and needs.
