Investors are often focused on searching for the best time to buy an investment property; but how often do we think about the best time to sell?
Anyone who has followed B.Invested founder Nathan Birch’s philosophy would probably be thinking, the best time to sell is…never!
Ideally, it would be great to stack a portfolio with positively geared properties that drive solid equity gain and eventually pay themselves off, leaving you with a whole lot of income producing assets that you can pass on to your kids, grandkids and so on and achieve that magical outcome of financial independence through multi-generational wealth.
And by hanging onto them all, you can avoid paying the government all that juicy capital gains tax and stamp duty they so love to receive.
But sometimes, it can be strategically sound to offload properties so that the money can be put to use elsewhere.
Pay down other debts
One of Nathan’s go-to demonstrations of how to build a property portfolio involves buying a $200,000 property, using equity as a deposit on the next one and rinsing and repeating until you buy 10 of them. Over however many years that takes, each of those $200,000 properties may have doubled in value.
When that happens, logically you could sell five of them and use the money to pay off the debt on the other five (or very close to).
This would mean you now have five unencumbered assets, delivering you income.
From there of course you can accumulate more if you wish.
Better investment opportunities
Say you have a rare opportunity to buy into a brilliant investment, but you’re not able to free up the equity or muster the borrowing power to do so.
Selling off an asset that has already experienced growth in order to get an asset with a significant upside potential is a solid strategy.
Imagine that the property you have already has grown in value by $300,000 and is at the peak of its growth cycle, but the opportunity you want to take requires a $300,000 buy in, with the potential to double the value almost immediately.
It could be a block of units on one title that you could put on separate titles and make instant equity, for example.
Selling off the asset and buying the investment means you are a much better chance of doubling that $300,000 than if you had stayed with the original property and perhaps had to wait another decade for the market cycle to provide that same level of growth.
Don’t sell in a trough
An important thing to remember is that, if you are in a situation where you need to sell a property, try to sell one that is closer to its peak. And hopefully the next opportunity you are pursuing is in a market trough.
Selling at the top of the market means you have reached at least some of the potential of the asset, while providing the chance to then access further potential with the next one.
If you sell in a trough however, you run the risk of getting a poor sales result and being unable to invest into your next opportunity.
Property is a vehicle
As Nathan often says, investment properties are simply vehicles that get you to your final financial destination.
Sometimes, one might run out of petrol and need to be swapped out for another that is better equipped to continue your journey.
It doesn’t matter. What matters is that you stay focused on your overall goal and how to get there. Book a time with our Investor Relations team to see how we can help you.