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Making the decision to sell an investment property isn’t always easy. The process of selling a home can be a long and costly process for any property owner, let alone an investor seeking to maximise their returns.
If you decide it’s the right time to sell your investment property, it’s important to work out the best exit strategy so you can save on taxes and ensure a smooth sales process.
To help make the decision and sales process easier, the team from Upside Realty has put together an expert’s guide to selling your investment property, complete with a checklist to ensure you’re equipped with the right know-how when the time comes.
So, should I sell my investment property?
While some experts say that the longer you can hold on to an investment property, the greater capital gains you’ll access when you eventually sell, others argue that maintaining an investment property could be costly, and changes in your circumstances could mean it’s wiser to sell the asset and use your cash elsewhere.
If you are able to time the sale for when the market is at a peak, you could also access enough capital to invest in another property with more growth potential.
If you’re wondering “Should I sell my investment property?”, here are some situations in which it could be a good time to sell:
- When you retire - Selling an investment property to free up capital for your retirement is one of the most common reasons people choose to sell, as selling an investment after retiring can affect your Age Pension entitlements.
- When you’re no longer getting a good return on investment - If your property is negatively geared and the capital growth potential is weak, or if the market in a particular area has come to a standstill, it could be time to use your equity elsewhere.
- The property isn’t performing as expected - Unfortunately, there’s no such thing a property market crystal ball. Sometimes performance expectations don’t come to fruition.
- When you want to invest elsewhere – If you’ve found an investment opportunity that is likely to provide a better return on investment, then it could be worthwhile selling your current investment property.
- When you want to access a Capital Gains Tax exemption – If you’ve lived in your investment property for at least 12 months in the past six years, you may be able to sell it without having to pay Capital Gains Tax. Past the six-year point, you’ll be liable for CGT.
On the other hand, here are some of the reasons you might prefer to hold on to your investment property:
- You bought it recently (less than five years ago) – The costs to buy (usually stamp duty and conveyancing) and to sell (agent’s fee, conveyancing fees again) can be expensive. In general, it’s a good idea to hold a property for a minimum of five years to reduce the impact of these costs to access long-term gains.
- It’s a solid performer – If the property is getting good rental yields and is positively geared, the case for selling is minimal.
- High growth potential – Remember that investing in property usually isn’t about short-term gains. If the property has good long-term growth potential, it’s probably worth holding on to.
- There are tax benefits – In some cases, eligible tax deductions are reason enough to hold on to an investment property.
How to avoid Capital Gains Tax when selling investment property
There are some circumstances in which you could be partially or fully exempt from paying CGT. These include:
- You bought the property before 1985 – Property is exempt from Capital Gains Tax if purchased before 20 September 1985.
- Your investment property becomes your main residence – If you decide to live in a property you bought as an investment, you'll be partially exempt from CGT.
- Temporary absence – If you move out of your home and rent it out, the property is still treated as your principal residence for a period of up to six years, and is therefore exempt from CGT.
- Affordable housing – Property owners who invest in qualifying affordable housing are eligible for an additional 10% discount on CGT.
If you make a capital loss, you may be able to use this to offset other capital gains you’ve made throughout the year.
Selling your investment property when the time is right
If the market is just right to make a strong return on your investment, or if you’re looking to downsize your portfolio or move into a different type of investment, here are the steps that you need to take to get the property sold.
1. Find out how much your property is worth
First, you need to find out what your investment property might sell for in the current market. The best way to do this is to speak to a real estate agent who is local to the area, and get a few expert opinions alongside your own research.
For your own research purposes, a great place to start is by getting a free online property value report from Upside. This handy report will give you access to information from Australia’s leading real estate data providers, covering insights such as a value estimate of your property, recent sale prices of homes in the area so you can see where your property sits on the market, as well as suburb demographic data - and best of all, it’s free and delivered to you in just minutes.
If you can, head to some auctions for similar properties in the area and see what they sell for, and take note of how many people attend and bid. This is a surefire way to get a ballpark figure for what your place could be worth, and how in demand it might be.
2. Compare real estate agents to find the best
Choosing the right agent can have a huge impact on your entire selling experience, how many fees you have to pay, and the amount you sell your property for. Be sure to do your research and pick an agent that can offer you value for money and good service, and remember that getting the right agent starts with asking the right questions.
You can get a property appraisal from the local Upside agent of your investment property’s area. We offer this service for free and at no-obligation. Your Upside agent will provide you with an up-to-date assessment of how the suburb is performing, and where your property sits in comparison. As part of the process, we also supply a detailed market report of properties that have sold in your immediate area in the last 3-6 months.
3. Consider the tax repercussions and costs involved
Selling a property the traditional way can take months and comes with a number of costs, like agent’s fees, conveyancing fees, marketing fees, and so on. To top it off, since your investment property isn’t your main home, selling your investment property will attract Capital Gains Tax (CGT). If you’re not an Australian resident for tax purposes, you may also be liable for a Capital Gains Withholding cost equal to 12.5% of the value of the sale.
With this in mind, take the time to calculate what it would cost you to sell your property.
When you sell with Upside, you know exactly what you’re paying for, and that’s management of the entire sales process for an all-inclusive low, fixed fee.
4. Decide on an auction or private treaty
With the advice of your agent, you will need to decide on whether you want to go for an auction or a private sale. While both methods have their advantages, the best outcome for you will rest on the type of property you have, as well as how the property market is currently performing. You may find that if your property is in high demand, or has unique traits that are favourable in the present market, the chances of it doing well at auction are increased.
5. Ensure your agent and tenants are in communication
Tenants must have 24 hours’ notice of an inspection, so it will be important for your agent to be aware of the legal requirements around selling a tenanted property. Discuss this with your agent ahead of time so no errors are made, as this could result in unhappy tenants and unhappy prospective buyers.
Should you sell a tenanted property?
If your investment property has tenants, you might be wondering whether it’s better to sell while tenanted or when vacant.
While many landlords prefer to keep their tenants in place and paying rent as long as possible, others prefer to sell an empty property. Tenants’ rights vary by state, so it’s important to get real estate advice from an agent who is able to advise you on all the requirements so that you can be sure you’re observing the right laws.
There a several pros and cons to consider when selling a tenanted property:
- You’ll still receive rental income during the selling process
- Prospective buyers could be attracted to a property that is already tenanted
- Having a tenant living in the property assures investors that it has good potential
- You’ll need to give the tenant adequate notice before inspections
- Tenants may not present the property in its best light, which could negatively impact the sale price
- Tenants could be seen as an inconvenience for buyers who want to occupy the property on settlement
If you do decide to sell an investment property while tenanted, you must give adequate notice to your tenants. Check details of their tenancy agreement and the laws in your state to make sure you comply. After finding out that they have to move, your tenants may decide to leave sooner rather than later – some landlords will offer a reduced rent in exchange for the disruption of viewings and maintain a good relationship.
While it doesn’t have to be a deal-breaker to have people living in the house while you show prospective buyers, maintaining a good relationship with tenants is important to ensure the sales process is as smooth as possible.
Checklist for selling investment property
If you’ve decided to put your investment property up for sale, you’ll have a long list of items to check off your list to ensure your property sells.
Fortunately, you will have the help of an experienced real estate agent to talk you through the process, as well as that of a solicitor who will ensure the legal paperwork is filled correctly. To make life easier, we’re created a complete checklist for what to do when selling an investment property to help move you through the process.
Take a look at the full checklist below before you make your sale!
Selling your house checklist
- If the property is currently rented, inform your tenants of your intent to sell.
- Tidy the property to prepare it for sale, including outdoor areas for maximum curb appeal.
- Make any necessary changes or updates that would increase the sale price - of your property.
- Request a free property appraisal from Upside.
- Decide on a real estate agency to help make the sale.
- Carry out property research on similar homes to determine an asking price.
- Determine a sale method (traditional private treaty or via auction).
- Prepare a contract for sale with a lawyer.
- Approve a marketing plan.
- Work with the agent to prepare and show the property for open homes.
- Discuss offers with an agent.
- Accept an offer.
- Agree on a settlement date.
- Ensure the new owner knows when the current tenant lease is finished (they must legally allow the tenants to stay until that date). Alternatively, give tenants a minimum of 30-60 days’ notice that they must vacate the property.
- Manage paperwork with an agent and a solicitor.
- Receive payment.
- Pack and move any items from the property.
- Close all utilities accounts for the property.
When you’re selling your investment property, it’s important to maximise the return on your investment. One way to save is by going with a flat-fee agency like Upside – chat with the Upside team about how they can help.
Upside’s aim is to make real estate better for everyone, with upfront costs so vendors know exactly what to expect when selling their homes, and an industry-leading online platform that lets you track exactly what is happening along their property journey.