When Is It A Good Time To Sell A Property?
There comes a point in time that you need to sell your home. This can be for various reasons such as an expanding family, downsizing for retirement and releasing equity or needing to relocate. However as an investment property it is wise to hang on to this for as long as possible as generally house prices tend to double every 10 years or so.
One of the key factors you should watch is the market and know where the market and economy currently sits in terms of the property clock. An optimal time to sell is when prices are high. You should also bear in mind that on selling an investment property you will have to pay capital gains tax as well as other costs.
Here are four key factors that might indicate it’s time to sell:
1) Property is under-performing
If you bought a property thinking that it was a great deal at the time and found out that it isn’t performing as well as you had hoped, it might be a good time to cut your losses sell your property and start over. This property might be costing you more money to keep and starting to eat away into your finances so it’s best to learn from this mistake, sell and move on.
2) Maximum Profit Made
As soon as a property has reached its maximum value there is little reason to keep hold of it. Now would be the best time to sell and use this money to invest in other properties.
3) Depreciation has been reached
Depreciation on a property lasts for up to 40 years from the time that it was constructed and applies to the building itself as well as the internal fittings. The first year is typically where you can claim the highest levels of depreciation and after this it reduces every year. If you have reached the end of your depreciation schedule, it may be time to sell and move as there is no more money to be claimed.
4) Better opportunities
It is important to keep an eye on the market and know how your property is performing in comparison with others that are similar. If it turns out that you have spotted a better opportunity in the market with better investment prospects then you may choose to sell this property to use the equity to fund this new one.
It is also important to know the negative effects of selling a property too soon:
1) Capital Gains Tax
Depending on whether this property is your home or investment you may have to pay capital gains tax. You could be eligible for full or partial exemption, or you may have to pay the full amount.
2) Selling too early
If you start to panic and sell too early before the market has really begun to move you might miss out on potential profit whilst also affecting capital gains.
3) Holding on too long
You may miss the demand by holding on to a property too long, thereby making the sales process even longer and potentially selling your property for a lower price that it could have gone for if brought to market earlier.
4) Hidden Costs
Many people forget to look at all the hidden costs associated with selling a property which will determine how much profit you actually make. These costs include legal costs, agent commissions, moving costs etc.
Ideally, you want to hold on to your investment properties for a longer period of time, but it is important to also bear in mind the costs and implications for selling and knowing when to sell.
Published on 26th of March 2015 by Marty Stanowich