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With current property prices at historic highs, you may be wondering if it is time to sell or retain your investment property.
It can be a difficult decision to make because holding on to an underperforming home might cost you money in the long term. At the same time, selling at the pinnacle of the market allows you to maximise your ROI while avoiding a downturn.
Instead, according to data from property researchers CoreLogic, Australian housing prices have increased by +10.6 per cent year to far (YTD). This includes regional markets, which have outperformed capital cities, increasing by +15.2 per cent year so far.
Let’s take a closer look at each situation – hold and sell – and what elements should influence your decision in each circumstance.
When Should You Keep Your Investment Property?
If you fulfil these requirements, you should generally avoid selling.
1. You Have The Financial Means To Retain It
If retaining your investment property causes you no financial hardship, it is evident that you should do so. Your tenants’ rent might cover your mortgage payments, leaving you in the black and favourably geared. You may have also owned it long enough for the mortgage payments to be manageable, or you may have paid it off entirely.
2. The Property Is Increasing In Value And Making Money
This may sound simple, but if your property is performing well, especially if it is favourably geared, you should relax and let capital growth do its job. This is especially true if you have no problem finding tenants or if you have long-term tenants you like.
3. You Purchased The Home Less Than Five Years Ago
Because capital development takes time, you should hold if you purchased your investment property less than five years ago. Why? Real estate agent commissions, conveyancing, and advertising are just a few of the expenditures connected with selling (and purchasing).
When Should You Sell Your Rental Property?
If you fulfil these requirements, it may be time to sell.
1. A Market That Is Stagnant Or Deteriorating
A stagnant or decreasing market is clear since prices are either flat or declining. Vacancy rates will begin to grow as well. This can happen to a suburb if the planned infrastructure is delayed or scrapped, diminishing its desirability to renters and investors alike. Certain properties may also go out of favour, such as the current trend away from high density, off-the-plan houses.
2. You’re Losing Money Because Of The Property
If your investment property is negatively geared, which means it costs you money to retain it, selling might relieve some financial strain. This is obviously based on your circumstances, but selling makes great sense if you cannot afford it. After considering the local market’s potential and the likelihood of a comeback, this decision should also be taken.
3. The Market Is Thriving
If the market is hot and you’ve kept your investment property long enough to make an excellent return, sell! The last thing you want to do is miss out on a market top, and the dread of missing out is much worse than FOMO.
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