To Sell or Not to Sell? How To Determine Whether You Should Sell Your Investment Property

August 8, 2021

When investing in property for capital gain, the intention is usually to buy and hold for the long-term.

But the ‘buy and hold’ strategy shouldn’t be confused with the ‘buy and forget’ approach.

You need to remain an active holder of investment property – being an active holder means you need to review your investments regularly to check that they’re performing, what their future prospects are, and to determine whether it makes sense to continue to hold - or whether it would be better to sell.

The reality is things change and the conditions that existed when you bought the property may or may not still hold true. Markets conditions change, regulations change, populations change, price brackets change, interest rates change – and each can have an impact on your investment property.

It often isn’t a case of an investment property being a bad one – but rather a question as to whether it will continue to be the best one, or if your money could be working harder elsewhere.

So, I just want to outline for you a few of the things we can help you consider when determining whether holding the property is still the best strategy.

- First – how likely is it that the property will continue to go up in value at the same pace it has? There are a number of variables that affect that, but the size of the market that can afford that property is really important. Generally, once it’s over a certain value, for example in Auckland once it’s worth more than1-point-6 to 1-point8, we need to think about replacing that property, as over that threshold the pool of people who will be able to buy it diminishes. We also need to consider the prospects of the location – has it had its boom, or is it still to come? Then, is there anything about it that might diminish its rate of growth, for example, is it leasehold, is it an apartment, what is the area zoned for, how many bedrooms does it have? That’s before we even get to market forecasts and interest rate projections.

- Then, we need to factor in the costs of holding it. So, what is the yield? What repairs and maintenance are likely to be required over the next 10 years? What work is required to make it compliant with Healthy Homes regulations, and what will that cost?

- Next, we factor in tax policies. For example, the diminishing ability to claim tax deductions on interest costs for existing properties. That means it will cost progressively more over the next four years to hold that property. We also need to consider whether you’d be subject to a capital gains tax under the bright-line test if you were to sell the property.

- Then we overlay bank lending considerations – for example, how much of your money do you need to keep in the property – is it 20%, or 40%? If you were to sell it, what would realising that capital gain allow you to do?

- Lastly, we consider timing. Is there strong demand for this property right now that might prompt you to sell it, or could that demand be even stronger in future?

In short, we need to understand all the merits and drawbacks of the property – the opportunity, but also the opportunity cost – and how they sit alongside your financial goals.

Choosing to sell is not something I’d recommend lightly, it can be a hassle, and it comes with costs for a start. But that’s why we want to thoroughly assess each property’s merits and prospects, so you can be confident that your investment strategy is the best way to maximise your position.  

Hannah McQueen in a financial adviser, chartered accountant fellow, personal finance author, and the founder of enable.me – financial strategy & coaching.

To book an initial consultation with an enable.me financial coach – click here.

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