Sell or Keep the Rental? Signs to Look Out For When It's Time to Let Go

Published 22 March 2021 by Team :Different

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Whether you should sell or keep a rental property is a matter of timing, but not timing alone.

Maybe you’re looking to pay off debt, your tenants’ lease is about to run out, or you’re just feeling ready for a change.

Whatever the reason, it's not easy to decide if it's the right time to sell your rental property.

The market is full of ups and downs and it can be near impossible to foresee when the next boom will be. Nobody wants to sell their rental, only to find out they missed a 7% growth rate for the year, like the regional market in Australia, is seeing now.

To help you decide whether it’s time to sell or keep your investment property, we’ve got some advice for you.

4 Signs it's the right time to sell your investment property

The average time an investor will hold onto their property is 7-10 years, but don't treat this as a rule set in stone.

Here are 4 indicators that now is a good time to sell your investment property:

  1. You're holding a rental in a stagnant or declining market
  2. You've recently retired or started working part-time
  3. The property is negatively geared but isn't growing in value
  4. There are other investment opportunities out there you'd rather stick your feet in

Let's dig into each of these cues.

1. The market has little to no potential for future growth.

If the area that you’ve invested in is at a long-term property market standstill, you may want to sell before it starts to decline further.

A way you can know if this is the case is if the area is seeing higher vacancy rates, if the population in the area or suburb is stagnant, and in general how sentiment is at the moment.

We recommend looking at SQM Property Indexes and CoreLogic Housing Updates to keep track of these metrics.

2. You’ve recently retired or have changed to working part-time

There's a time to sow and there's a time to reap. Upon retiring or seeing a reduction in your workload, it's likely a time to collect the benefits of the property you've been holding.

This goes doubly if your rental is a negatively geared property. The expenses may be hard to keep up with, and you'll be better off selling.

Of course, this will depend a bit on your financial goals. If it's a positively geared rental and you're happy to live off the rental income, that's fine. But you should have a plan as to when it's time to sell the property and live a little.

Plus, this change in circumstance may be a great opportunity for you to sell. As you have less or no taxable income, you won’t be required to pay as much Capital Gains Tax (CGT).

CGT is basically the government’s fee on the profit (or capital gains) you’ve made from your investment property, so by selling while you're not working full-time, you get to keep more of what you've made.

3. Your investment property isn’t performing well, and is negatively geared

No matter how much research you do before investing in property, sometimes rental properties just won’t perform as well as expected. If you’re losing money and the property is depreciating in value, it’s definitely time to consider selling, particularly if the market is looking stable.

4. You’ve spotted better investment opportunities

The whole reason we’re in the property investment game is to increase capital gains, and if you’ve found an opportunity to do just that, it's better to seize it.

Just do your research first. Remember that there are a lot of costs associated with both buying and selling a property, so make sure that the flip is going to be worth it in the long-run.

The ATO also has great advice on tax deductions when selling a rental property.

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3 Cases when you should hold on to the rental property

Knowing when to hold is an artform on its own, and it's an important one.

Not selling your investment property can mean greater benefits in the long term. So, here's a few ways you can tell that you should keep your head cool and stick to your guns.

1. You bought the property quite recently

If you’ve only had your investment for five years or less, it may cost you more to sell than it’s worth. As you know, the costs of buying a property are extensive, and the same can be said for selling.

Taking into consideration your real estate agent’s commission, home updates, closing costs, and advertising (we could go on), selling can be a pricey venture. To ensure you’re not coming out at a loss, we’d recommend holding onto your property until you can be sure to make some capital gains.

ANZ has a comprehensive list and price breakdown for selling a property worth checking out.

2. Your property is in a good location and is making you money

This should be an obvious one, but sometimes a lull in the market can scare investors into thinking they need to sell. If your property is located in a growing area, you’re finding it easy to get tenants, and its value has increased since you purchased, there’s no need to consider selling.

Sure, maybe it could be better, but we'd rather you keep your risk on a minimum and take the safe route for more financial stability.

It’s also more difficult to maneuver selling a rental property with tenants, so if you’ve got quality tenants at the moment, we’d recommend holding onto them. Remember, it’s not just about short-term gains - your property is going to steadily increase in value over the long term

3. Your current property is boring you

We mentioned earlier that if you find a better investment opportunity, you should grab it.

That being said, you need to avoid just looking for novelty. Too often do we see property investors let go of a perfectly good property because they wanted something new and exciting.

On the contrary, it's a pretty good sign if your rental is boring you out. It just means that things are going good, stable and without trouble. So, don't shake it up just for the sake of it.

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Disclaimer: The views, information, or opinions expressed in this blog post are for general information purposes only and should not be relied upon. We have not taken into account specific situations, facts or circumstances, and no part of this blog post constitutes personal financial, legal, or tax advice to you. You should seek tax advice from your accountant, specific to your situation.