Knowing when it’s OK to sell your investment property

It’s a common misconception amongst property investors: “never sell your property.” Although residential property investment requires a long-term outlook to ride out market fluctuations and maximise the effects of compound capital growth, even the best quality investment asset has a use-by date.  

The whole point of investing is to improve your quality of life. At some stage, you’re likely to reach the point where selling a property is the only way to help achieve further investment or lifestyle goals. Here, we look at four situations in which it may be appropriate to sell.

 1. Making room to move.

If you have a growing family, you may need to renovate or extend the family home. If you take out a loan to meet these expenses, you’ll pay the full amount of interest, because expenses associated with the family home are not tax deductible. By contrast, if you sell your investment property, you can use the proceeds to pay for the home improvements outright. 

When you’ve completed the renovations, focus on paying down the remaining debt on your home so that you’ll be well positioned to buy another investment property later down the track. 

2. Hanging up your hat

If you’re nearing retirement and you have an investment property that you’ve held for many years, it may be worth selling it and transferring the equity into a more tax effective structure. When you’re working, your aim is to generate income through a wage or salary and purchase assets that will create capital growth.

Once you retire, however, it’s the job of your investment assets to generate the income for you. To maximise the available income, you need to minimise the tax payable. If you sell your investment property and put the proceeds into a superannuation account, the income generated will be tax-free when you draw on it in years to come. 

3. Ditching an underperforming asset

Regardless of your stage of life, there’s little point in holding on to an investment property if it’s not performing to an acceptable standard. It’s important to review your property’s capital growth performance each year, relative to the wider market. If it fails to outstrip the median increase for a couple of years running, chances are this situation won’t change anytime soon. It may be better to sell the asset and move on to something more productive. 

4. Getting away from it all

 Many people who are reaching the peak of their careers like to escape to the coast or country on weekends and recharge the batteries. If you’ve held an investment property for 10 years or more and it has achieved significant capital growth, it may be appropriate to sell the property and use the proceeds to buy a holiday home outright. 

Generally speaking, properties in holiday areas have a more volatile capital growth pattern, and should not be regarded as prime financial investment prospects. They’re really an investment in lifestyle.

    Remember the decision to sell an investment property should never be undertaken lightly. Regardless of your personal and financial situation, seek independent personalised advice before you make a decision.  

    Mark Armstrong is a director of iProperty Plan, which provides independent analysis and tailored advice to investors and home buyers.




    Mark Armstrong

    Mark Armstrong

    Mark Armstrong is a director of, Australia's number one real estate agent rating website.

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