Should I sell my investment property? 5 key factors to consider

To sell, or not to sell…It’s a big question.

If your financial priorities have changed, you might be thinking about selling your investment property.

And you're not alone. Soaring interest rates and shifting market conditions have forced many Australians to make the decision. So, should you sell now or hold onto your property?

If you’re still sitting on the fence, here are five factors to consider. You can also contact us and speak with a trusted local real estate agent. We have decades of knowledge and experience that we can use to help guide you through this decision.

5 key factors to consider

Deciding to sell your investment property is something you should feel confident about. If you’re not sure what to do yet, that’s okay. Here are five key considerations to help you make that call:

1. Your goals and circumstances: What are your financial goals? Is your investment property helping or hindering your progress?

1. Your property’s performance: Establish whether the rental income and capital growth you’re receiving are sustainable against ongoing costs.

1. Market conditions: If it’s a seller’s market, putting your property up for sale now might make sense for you financially; if it’s a buyer’s market, it could be wise to hold off.

1. Tax implications: How might capital gains tax and any possible deductions impact your profits if you sell?

1. Your personal circumstances: Think about your responsibilities and how they might shift over the next few years. How will those changes affect your finances?

Let’s take a look at these five key considerations in a little more detail.

1. Financial goals and circumstances

It’s important to understand how your investment property fits into your broader financial plan. Ask yourself the following questions:

• What are my current financial goals? For example, are you planning for retirement, saving for a home upgrade, looking to make other investments or boost your cash flow?
• Do I need access to cash? Property can be a valuable asset, but it’s not a liquid one. If you need funds in the near future, selling your property could be a good way to access them.
• Am I managing substantial debt? If so, using proceeds from the sale of your home can significantly reduce or eliminate it.
• Is my emergency fund in good shape? If you don’t have a big enough buffer in place to absorb unexpected expenses, selling could give you some welcome backup.
• Can I manage my property’s ongoing costs? Loan repayments, maintenance, strata fees and other costs can eat into your rental returns. If they aren’t particularly high, it might be worth selling.

2. Your property’s performance

It’s important to determine how your investment property is performing. Is it delivering the returns you expected, or has it become a financial drain?

To gain a clearer picture, ask yourself the following questions:

• Has my property gained value? Try to establish how much capital growth you’ve seen since you purchased your property. If it hasn’t appreciated or there’s been a decline in value, it might be worth selling.
• How strong is the rental yield? Compare your rental income to the property’s current market value and total holding costs. If yields are low or falling, the investment might not be pulling its weight.
• Is your property often vacant? Are you struggling to find the right tenant for your property? As long as your property remains vacant, you’re missing out on that extra income.
• Are your expenses rising? Ongoing costs like mortgage repayments, strata fees, insurance, and maintenance quickly add up. If they exceed your rental income, it could affect your cash flow.
• Is your property becoming a money pit? Older properties often require more upkeep. If you're facing major repairs, such as replacing a roof or rewiring, you might prefer to sell.

To gain a fuller picture, it’s a good idea to speak with an expert. At DiJones, we have insiders’ insight into the local market and wider conditions, which can help you gain a fuller picture of where you’re positioned.

3. Market conditions

Understanding the current state of the property market can help you decide whether to sell or not. Here are some questions to consider:

What’s happening in your local property market?

Are property values rising, remaining steady or falling? Take a look at recent sales in your area to gauge demand. If it is a seller’s market, you’re more likely to score a higher price for your property with less time on the market.

Where are interest rates heading?

High interest rates tend to reduce your borrowing power as a buyer. This can impact your listing and bid prices. Lower rates, on the other hand, have the reverse effect. Keep an eye on the RBA’s latest cash rate updates to get a better idea of where interest rates are heading.

What’s the rental market doing?

As an investor, you need to consider the state of the rental market when deciding whether to buy or sell your property. If vacancy rates are low and rent is rising, it might be wise to hold on to your property in order to benefit from stronger yields. However, if demand is falling, selling might be a more appealing option.

What’s the economic outlook?

Generally speaking, if the economy is strong, property values and rental demand tend to increase. But if any form of uncertainty looms, it might make buyers more cautious about over-stretching themselves.

4. Tax implications

If you decide to sell an investment property, it can trigger tax consequences. While you might be aware of some, others aren’t always obvious, so it's important to understand what the potential implications are.

Will you need to pay Capital Gains Tax (CGT)?

In most cases, you’ll have to pay CGT if your property has increased in value since you bought it. The amount you pay will depend on your individual tax rate and how long you’ve owned your property.

How long have you held the property?

If you’ve owned your property for more than 12 months, you may be eligible for the 50% CGT discount. This could significantly reduce your tax bill once you’ve sold.

What’s your cost base?

Your cost base is the total amount you’ve invested in your property, including the original purchase price of your home, legal fees, stamp duty and any capital improvements you’ve made. Calculate your cost base, as this will influence your CGT liability (the amount of CGT you’ll need to pay when you sell).

Have you claimed depreciation?

If you’ve claimed depreciation on your tax returns over the years, the Australian Taxation Office (ATO) might ask you to account for this in your CGT calculation when selling. This is known as ‘recaptured depreciation’. You can learn more about depreciation and deductions here.

Are there other taxes involved?

Depending on where you live and what type of property you own, you might be subject to other taxes if you decide to sell. For this reason, it’s best to clarify which taxes are included with a qualified accountant.

5. Your personal circumstances

The decision to sell goes beyond numbers. Consider your lifestyle, health, stress levels and future plans. Here are some questions to reflect on.

Are you tired of managing your property?

Managing a property can be time-consuming. If you find yourself regularly dealing with maintenance, tenant turnover, or late payments, this can take a toll, so you may be mentally ready to move on.

An alternative to selling might be finding a property manager to handle the responsibility of managing your property for you. Contact us today to learn more.

How much risk are you willing to take on?

Owning an investment property comes with a lot of uncertainty. Valuations can fluctuate, costs can spike, and repairs can be both expensive and unpredictable. If your appetite for financial risk has waned, selling it could take a significant weight off your shoulders.

Are you planning to retire or relocate?

If you’re preparing for retirement or planning an interstate (or overseas) move, you may no longer want the responsibility of a rental property. Instead, you might prefer to access the equity in your property to support the next phase of your life.

Is your investment portfolio balanced?

It’s always a good idea to diversify your portfolio. If your property is the only investment you’ve made, selling could give you the ability to reinvest the proceeds into different asset classes. This will help reduce the risk of putting all your financial eggs in one basket.

When should you seek professional advice?

If you're considering selling your investment property, it can be helpful to speak with a professional (such as a financial advisor and a real estate expert) before making any final decisions.

Here are a few things you might want to add to your to-do list:

• Get a professional appraisal of your home: A DiJones property expert can provide an up-to-date appraisal of your property’s market value. This can be helpful when it comes to setting your expectations.
• Consult a tax advisor or accountant: They’ll calculate how much capital gains tax you’ll need to pay. Additionally, they’ll advise you of any depreciation implications or local tax rules that apply to your situation.
• Speak to a financial advisor: They can help you understand the opportunity cost of selling. They’ll also advise you on the most suitable reinvestment strategies for your long-term financial goals.

How to sell an investment property

If you do decide to sell your investment property, here are our top eight tips for a smooth sales process:

• Notify your tenants in line with your lease agreement and local tenancy laws.
• Get the property appraised by an experienced local real estate agent.
• Review your loan and calculate your likely sale proceeds after fees and repayments.
• Engage a conveyancer or solicitor to manage the legal side of your sale.
• Prepare your property, and don’t forget to factor in the cost of repairs and renovations, styling, and professional photography necessary to put your property on the market.
• List your property and arrange inspections.
• Negotiate and accept an offer, then sign the contract of sale.
• Settle the sale and manage any capital gains tax obligations.

Final thoughts

Deciding whether to sell your investment property isn’t always straightforward. It’s important to weigh a variety of factors and seek advice before making a final decision.

For specialist guidance and an honest appraisal of your property’s value, get in touch with the award-winning property management team at DiJones. Whether you’ve just started exploring options or you’re ready to sell, we’re here to support you every step of the way.

FAQs

What costs are associated with selling an investment property?

There are several costs associated with selling an investment property. They include agent fees, legal fees, marketing expenses, and potential repairs or staging. You may also need to pay capital gains tax if the property has appreciated in value.

How does negative gearing affect my decision to sell?

If you’ve been negatively gearing your property, you might be claiming annual tax deductions. Selling could end those benefits, so it’s important to weigh this against the long-term performance of your investment.

Can I sell my investment property after retiring?

Yes, and many people do this to access their equity or reinvest the proceeds. However, selling later in life might impact your super contributions or pension entitlements, so it’s wise to speak with a financial adviser before making any final decisions.