- Profit has been maximised: When a property has reached maximum value, there is little value in holding onto it for longer. Therefore this is generally considered the optimum time to sell.
- Property has not performed: Having cash or equity tied up in an investment that has not performed (over a reasonable time period) can prevent an investor from reaching their financial goals.
- Better opportunity elsewhere: Investors should know how each of their properties are performing relative to a) others in their portfolio and b) those in the market place. If another opportunity presents itself with greater investment prospects then it should be considered.
- Depreciation has been maximised: Depreciation on a property lasts for up to 40 years from the time of construction. Over time the value of depreciation recedes. This could weaken a property’s cash-flow position to the degree that it becomes better to sell.
These include:
- Selling too soon – before the market has started moving. This can impact on capital gains and, thus, the profit made.
- Holding for too long until demand has dropped off and the market is going down. This can prolong the sales process and result in a lower price.
- Selling to buy in a rising market, but then sitting on the sidelines. If an investor sells in this scenario, they shouldn’t then neglect to buy a property as intended.
- Forgetting to factor in selling costs (eg: agent commissions, legal costs and the like).
- Cross-collateral implications with lenders: Selling might trigger the need for valuations on other properties in a portfolio. This, in turn, could impact on the value of the portfolio.
- Capital gains tax: If a property is held for 12 months an investor will get 50% off capital gains tax. But if they sell within that time they won’t. Therefore it is not a good idea to sell a property within 12 months of buying it.
