My property strategy is often classed as a long-term investor.
Just to make things clear... my philosophy is to buy and seldom sell, rather than to buy and never sell.
Why is that?
Well, life has a funny way of bringing changes upon us and often there is not much we can do about it.
Similarly our property markets change, the world of finance changes, legislation changes and the property cycle changes to the next phase.
That’s why I believe you should annually review your investment property portfolio to determine how it's performing and if you are holding a dud which you should sell so you can move on and use your funds more effectively.
In changing market conditions like the one we are now experiencing I know some investors are considering selling their properties.
Before they do, though, they should ask themselves these three important questions.
1. Is the property "investment grade?"
As I mentioned above, if the property is a dud, then you should probably sell because it’s costing you in opportunities elsewhere.
You should start by asking yourself these questions:
• How has the property performed over the last few years – has it grown in value?
• Knowing what I know now, would I buy this property again?
• Is this property likely to outperform the averages over the next decade?
• Is there anything that I can do to improve the property to generate a better return on investment?
If a property has failed to grow in value over a 3-4 year period, it is likely to be an underperforming asset.
The answers to these questions should ensure that you have a top performing property portfolio and that your money is working harder for you.
However, even if it hasn’t grown in value spectacularly that doesn’t mean it’s a dud because perhaps the market might have been in a protracted slowdown part of the cycle.
So, if the property is investment grade, the better strategy is for you to ride out the downturn because of the high entry and exit costs of investing in property.
2. Is it a good time to sell?
The answer to this question is often what holds investors back from selling their properties, and currently some would say it's probably not “a good time to sell” as we are in a buyers market in a number of our major capital cities.
Having said that what is your alternative?
You could wait until the property market moves up, but what's going to happen then?
Is somebody really likely to pay much more for your dud property then?
And while you're waiting for all this to happen the investment-grade property you're planning to buy instead is only going to increase in value, as will the gap between the value your current property and the new one.
So while timing the market might seem like a logical thing to try and do, firstly it's too hard to achieve and secondly it doesn't always make sense.
However selling an investment property is an important decision and subject to some significant transaction costs, so it's worth running the numbers carefully with your property strategist before you make this decision.
3. Is your desire to sell driven by fear or finances?
Human emotions get us into no end of troubles, don’t they?
They make us say and do things that are not always in our best interests and this is especially true when it comes to money.
Real estate markets boom and bust because of human emotion, with the former due to Fear Of Missing Out and latter due to Fear Of Losing Out (FOLO – which I just made up, but it works!)
With some markets transitioning across the country at present, fear is starting to take hold of some people.
They are worried because of all of the alarmist headlines that are predicting massive property price falls.
So, some people will sell because they don’t want to “lose any more money” on their investment property.
The thing is it doesn’t matter if the market is experiencing softer market conditions because any “loss” is imaginary unless you're planning to sell your property right now.
Smart investors understand this. they don't change their long term strategy because of short term movements in the market.
That's why they take no notice of the naysayers who are forecasting property doom and gloom.
Rather, as Michelle Obama once famously said, they stay high while others go low, because they know that the property tortoise will always beat the fearful hare in the years ahead.