Should you sell your investment property?

With rising interest rates and property taxes (in some states), some property investors are entertaining the idea of selling their investment properties. While it may seem like a good way to dodge the rising expense of owning rental properties, there are a number of costs associated with selling, too. Further, if you sell now and decide to re-enter the market later, you may not be able to buy the same standard of property than if you held your current investment. Below, we outline some of the key costs of selling and how they can impact your financial situation.

Don’t get blinded by profit

If you’ve held your investment property for several years, chances are the property’s value has increased. It may be tempting to think about the pure difference between your purchase price and the potential sale price of your property, but you need to factor in the other selling costs, too.

First, agency commissions can set you back anywhere from two to six per cent of the property’s sale price. On top of commission, you’ll need to pay to market your property. Running a high-quality marketing campaign for a property typically costs 0.5 per cent to one per cent of your property’s price. For a $600,000 home, expect to pay about $6,000 in marketing fees.

Capital gains tax

When you sell your investment property, you’ll need to pay capital gains tax (CGT). If you have owned the property for more than 12 months, you’re entitled to a 50 per cent CGT discount. Remember, the capital gain occurs on the date of the sale contract, not settlement. So, if you’re thinking of selling around the end of the financial year, keep that in mind when it comes to reporting the capital gain.

Consider your long-term goals

Both scenarios, either holding an investment property or selling it, have their own associated costs. Making the right decision for you will come down to your long-term goals and what you’re looking to achieve through owning an investment property. By holding a valuable asset such as property, there is always something available to leverage for further growth or to continue providing a consistent income or tax deduction.

Deciding whether to hold or sell your investment property is something to determine based on your unique situation. It’s important to remember the costs associated with selling and how that will align with your long-term goals. And, as always, it’s critical to get tailored advice from your accountant, financial advisor, and other professionals to help you make an informed decision.

 

Remember, this article is general in nature and is not financial or legal advice. Please consult your professional financial and legal advisors before making any decisions for yourself.