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For everyone who tells you to sell your investment property now, an equal number will tell you not to. It’s one of those topics that divides opinion and leaves property investors unsure which way to turn.
The unfortunate reality is there is no single answer that works for all. Instead of trying to predict when the property market might turn, examine the performance of your property. The below questions will help you separate the broader market conditions from the more relevant question about whether your property is worth holding onto.
Are you earning money from your property?
Consider your property as a strong performing asset if it has consistently earnt good rental income over several years and your expenses are moderate. When it makes more cash each month than is paid out, the cash reserves can be used to pay down your mortgage. Ask yourself whether you can do without this income if you sell.
Useful reading: How to Calculate the Value of An Investment Property?
Are you losing money or making very little?
Your property might be earning very little, but you decide to hang onto it for the promise of capital growth. While capital growth is a primary property investment objective, to get there, you need cash flow. Ask yourself whether you can afford to keep holding onto a property that has a low rental yield. Have you got the cash available to cope with unexpected changes like a rise in interest rates, property maintenance or extended periods of vacancy?
- Useful reading: What Can Your Cash Flow Tell You About Your Wealth
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Is your property causing you stress?
Property investment shouldn’t be the cause of continual stress and anxiety. If there are ongoing tenant issues or you’re worried about the lack of potential for growth, it makes sense to prioritise your mental health and take action. Your options might include selling up or seeking a refinance to alleviate financial pressure.
Speak to your Yellow Brick Road mortgage broker about alternative loan products and interest rates available, as well as the fees associated with refinancing.
- Useful reading: How to Find and Keep Good Tenants
Is there a better opportunity elsewhere?
If you’ve held your property for several years and the potential for capital growth is low, ask yourself whether there is any financial sense in holding on. With capital growth as little as 2%, you’re only just in line with inflation. Your YBR mortgage broker will be able to explain the process for determining how much equity you have in your property. Depending on your situation, you may be able to use this equity to fund another investment opportunity yielding better returns.
- Useful reading: How To Tap Into Your Home’s Equity
Have you calculated the costs of selling?
When considering the option of selling up, be sure to calculate the full costs. Expenses include Capital Gains Tax (CGT), legal fees, real estate agent commission, marketing fees and any makeover work needed to get the property ready for sale. An alternative might be to take advantage of historically low interest rates and funnel this money into paying off your loan faster.