australian property investing lloyd edge hold or fold
Property expert and buyers agent, Lloyd Edge, shares his insights on holding or folding a property. Image: Canva.
  • There are a range of factors to consider before choosing to either hold or sell.
  • It is always wise to remember why you purchased the property and if the property will still be helping you in the right direction to achieving your long-term goals.

Are you trying to decide whether now is the best time to sell your investment property, or whether your best option is to continue to hold on for the long term?

Property investors are sitting tight on their investments, waiting for the market to change wind into a seller’s market so they can get top dollar for their investment.

A seller’s market is where prices rise rapidly and properties seemingly “fly” off the market.

When you are buying an investment property, it is not always about what is the best property you can buy now, but it is also about understanding what your exit strategy will be for each investment property.

So, what is the best way to determine whether to hold or sell your investment property?

There is no simple answer.

But, we have compiled the most important considerations to help with your decisions:

When to hold on to a property

If you have purchased an investment property recently and it is seemingly not performing as well as anticipated, it may not be the time to throw in the towel just yet.

Property investing is a long-term game and when it comes to selling your investment property there are many costs involved such as solicitor fees, selling agent fees, capital gains tax (CGT), etc. It is always wise to remember why you purchased the property in the first place, and if the property will still be helping you in the right direction to achieving your long-term goals, then it might be best to hold onto it a little longer.

Perhaps you have a property in your portfolio that you have held on to for a long time and are wondering whether it is best to sell. If the property is not costing you anything, or it is providing positive cash flow then it may not be the best option to sell the property just because the property markets seem to be doing well.

Imagine, what the property might be worth in another 10 year’s time! Keep in mind, that if you have neutral or positive cash flow on an investment property, then your borrowing capacity (the amount banks are willing to lend you) might be greater, and it will be better to have that property in your portfolio rather than if you sold it.

There is also another factor you could consider before selling off your properties, which is to access the equity in the property to grow your portfolio. You do not always need to sell a property to purchase another and accessing the equity in one of your existing investments is a great way to grow your investment portfolio over time.

Considerations to hold on to a property:

  • There are costs involved when selling a property. Consider the selling agent fees, legal/conveyancing fees, and tax implications like CGT.
  • Growth over time and the rule of 72. To work out how long it will take for your property to double in value, divide 72 by the average annual growth rate.
  • What is your exit strategy? Or are you making a hasty decision because the market looks like it is performing well?
  • What are the long-term capital growth prospects?

When do you know it is time to sell a property?

When you buy an investment property, it may be difficult to have an exit strategy in place at the time of purchase – as the exit may seem so far away. It is always wise to plan ahead and understand what you want to achieve from your property investment in the long term, and once you have achieved that, when will you sell the property – what is your exit strategy?

If your property isn’t performing as well as planned, and you cannot see the long-term capital growth aspects it may be time to consider selling your property. Investing is a long-term game, but if you take a look at what your investment is going to look like in the next five, 10, or 15 years from now and it is not going to be in line with what you set out to achieve then it might be best to offload the property and invest in something that is going to work better for your circumstances. This is called opportunity cost.

If you did not plan to hold a negatively geared property, but because of rising interest rates your property is now costing you a lot of money, and stress, then it might be the time to sell your property.

Investing should better your lifestyle and mental health, and the ‘sleep at night’ factor is important. If you are stressing about how you are going to pay for your mortgage/rent as well as fund your investment property so much that you are unable to sleep at night, this is a strong indicator that you may need to sell your investment in order to get your finances – and health – back on track.

On the flip side, perhaps your property has significantly gained in value due to the speculation in the market. There may have been a significant increase in the value of your property, so it might be an excellent time to take advantage of the market conditions, sell your property, and move on to your next venture.

Opportunity cost

Whether holding or selling, it is important to consider your investment opportunity cost.

Opportunity cost is not a physical cost that you are paying for, but rather, in economics, opportunity cost is taking into consideration what opportunities will you be missing out on when you choose to do something else. This may seem quite confusing to some, so we will explain it in property terms.

When it comes to property investing, the opportunity cost for holding onto an investment property is the cost of missing out on perhaps a better deal.

For example, if you are holding onto a property giving $300 per week cash flow at a 4% yield, will you be potentially forgoing a property that could bring in $700 per week cash flow at 7% yield? You need to consider what opportunities you are missing out on because you are holding on to your current property.

Still unsure?

When it comes to your investment strategy, it is important that you realise when it is time to let go of a property in order to better your portfolio as a whole or to move on to the next thing. Sometimes, if your property is not performing as well as expected it is best to let go, so you do not miss out on the opportunity of investing in something that works better for you.

If you are still unsure how to move forward with your investment portfolio and whether you should hold or sell your investments, it might be worthwhile speaking to an experienced buyer’s agent or property investment adviser who is able to map out a long-term investment strategy or speak to your financial advisor to set in stone a retirement plan. These professionals can be a great sounding voice to help you make the right decisions for your personal situation.

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