Investing capital before selling

Written by Caitlin Costello in Finance on February 3, 2017

Investing capital before selling

Investments can be confusing. The capital on a property is no different. It’s difficult to know when to buy, when to sell, when to wait and when to move. Particularly when looking at buying a new property at the expense of an existing property, there’s much to consider.

The experts say never sell. But as we all know, life sometimes throws you unexpected curveballs. When is the right time to sell, and how can you maximise your capital when you do?

It’s difficult to accurately estimate the amount of potential capital growth on any property: unfortunately, we can’t see into the future. You can make a fairly educated guess based on the current market trends, however.

When should you sell?

  1. To reduce interest paid on home

Selling an investment property means you can put that money towards the mortgage on your principle place of residence. The longer you take to pay off your mortgage the more interest you pay in the long term, so depositing a lump sum payment at any point can only benefit the cause.

  1. The property is under-performing

This could be in terms of capital growth or renal yield. An investment property is purchased as a means to make a profit, so if it is not doing that, then it may be time to sell. Stay up to date with the market value of similar properties in your area to keep track of the value of your own, if it isn’t growing at the rate you wish, it could be time to think about your next move.

  1. Another offer comes along

Sometimes you can receive an offer that’s just too good to pass up. It could be a newly listed property in a desirable area, or it might not even be real estate related; but when you know, you know. Don’t look back and regret the chances you didn’t take, if it feels like a good opportunity then consider your options and consider putting your property back on the market.

When should you wait?

  1. It’s a recent purchase

If you have purchased the property within the last five years, it is inadvisable to sell so soon due to the costs associated with sale. Once you consider stamp duty, agent fees and conveyancing, the finances can stack up quickly. Property investment is not about quick wins, but more about patience and timing. The longer you hold out the less you will lose in these fees.

  1. Growth potential

If you purchased a property in an area that is now booming, you could be sitting on a goldmine. As population soars and desirable areas become flooded with tenants, first rental prices soar and then property sale prices. But remember – for everything that comes up, it must at some point come down!

  1. It’s a solid performer

If your property is easily managing steady tenants, is positively geared (its earnings are greater than the expenses) and there’s strong growth in the area, then it makes financial sense to hold on to it.

The decision of when to sell is just as difficult as that of when to buy! Consider pros and cons of selling, monitor the market and keep track of your expenses before making your decision. Like everything in real estate, it’s a gamble – but with the right information you can improve your chances of winning.