Should I sell my investment property?

Sale costs

The costs to sell a property can add up quickly:

• Real estate agent commission;
• Marketing costs;
• Title search and conveyancer fees; and
• Mortgage discharge fees.

Of course, you’ll also need to present the property in the best possible way which can result in repairs and maintenance expenses too. Depending on where the property is located and the price of the property, the total sale costs can easily extend to $20,000 – $30,000 and beyond.

Capital gains tax

While sales costs can certainly add up, capital gains tax has the potential to make these costs look menial. If you’ve selected your property well and held it for a long time, capital gains may cost you hundreds of thousands of dollars. Trying to avoid paying tax is no excuse for keeping a bad investment, but the cost must be calculated and considered!

Purchase costs

If you’re looking to purchase another property, whether it be now or in the future, remember to consider the cost to repurchase! In addition to the purchase price it is common to pay costs relating to:

• Stamp duty;
• Building and pest inspections;
• Mortgage registration and loan fees;
• Conveyancing and legal fees; and
• Valuation costs.

When these fees are added to other potential costs, such as a buyer’s agent, the cost to transition between properties can get very expensive. Similar to sale costs, the cost to purchase a new property can easily extend to $30,000 and above, depending on where you choose to invest.

Equity

If your property has increased in value you may have built usable equity. Rather than selling the property to access this equity, it may
be possible to simply refinance your loan(s) to allow the purchase of a separate investment. Doing so could allow you to reduce the various costs to sell your investment and boost your borrowing power by thousands. Find a reputable mortgage broker in your area to help you with this process.

Other investments

Consider how you are going to achieve a better return before selling an asset. Develop a plan as to how the proceeds of your property sale will be invested. Whether it be organising a high-interest bank account (until your next big move) or researching your next investment opportunity it’s imperative to limit the amount of time your capital isn’t invested.

Conclusion

If your motivation to sell is driven by a lack of affordability, selling may be your only option.

If you’re selling to take advantage of a separate investment opportunity, consider restructuring your loans to access equity to make the purchase, rather than selling an existing holding (particularly if you’re happy with performance and can afford to do so).

If you’re concerned about the past and potential future performance of an investment, when compared to other available investments, selling may be a genuinely good idea.

But, if you’re concerned about potential losses in a bad market, you may find the cost of selling and repurchasing in the future is far
more expensive than simply holding-tight. 

Seek professional advice if you need help making this important decision.