Expert Advice with Simon Buckingham 01/07/2018
With uncertainties about the growth outlook for property in many areas, and the current finance environment making borrowing for property investment more challenging, many investors are wondering whether they should be holding on to their existing investment properties, or considering a sale.
Many property spruikers promote the notion that you should only ever buy and hold property, but NEVER sell.
Selling an investment property is almost considered "heresy" because - they say - then you might have to pay TAX! And you'll lose out by paying stamp duty costs on your next purchase too! And you might not be able to buy back into the market at the same price!
In reality however, the "buy, hold and never sell" mantra promoted by property spruikers is often just a sneaky way of disguising the poor performance of the properties that they sell investors into...
After all, if you never sell then you (and they) never have to face up to the fact that the purchase was a lousy investment!
In the many years that I've been mentoring property investors, I've seen far too many properties bought from promotors and spruikers (people with a vested interest) that have massively underperformed - including some that haven't gone up in value for 10 years!
I've heard the sales people responsible (who often disguise themselves as "mentors", when they're no such thing) use platitudes and throw-away slogans to try to cover for the poor performance of their property investment recommendations.
A classic quote from one sales agent that was reported to me by a student - who came to the RESULTS Mentoring Program precisely because they wanted to do better than the poorly performing investments they'd been sold into by that spruiker - was this:
"Property investing is like baking a cake. You have to just leave it in the oven and let it bake away, because if you take it out too soon, it's ruined!"
In other words: Just keep on waiting (for an indeterminate time) and eventually your underperforming property will go up in value (by an indeterminate amount).
Except that the investor had already been waiting over 5 years for the apartment that he'd bought on the sales agent's recommendation (and for which the agent probably got a kickback from the developer) to increase in value.
In fact its value had actually gone down. Furthermore, the apartment was located in an area that already had a significant oversupply of similar apartments, with even more under construction.
What this experience highlighted, aside from the agent’s obvious conflict of interest, was their disturbing lack of any real understanding of the property market. Housing in an oversupplied area is unlikely to go up in value – it’s actually more likely to decline.
In other words… if you stuff-up the recipe to begin with, your cake ain’t gonna rise!
(If you want to invest smarter and avoid common property investing mistakes, then check out this free report on “How NOT to Stuff Up Your Property Investing!”
Don't Believe The Hype!
Sophisticated property investors don't blindly subscribe to this kind of "buy, hold and never sell" dogma.
A sophisticated property investor is not a property "collector". They regard owning property as simply a vehicle to help carry the investor to their financial goals, not the "destination" in itself.
And if it makes financial sense to sell a piece of real estate in order to move their investing forward, then rather than holding onto it (and being stuck in a rut as a consequence), the sophisticated property investor will sell.
We could take a leaf out of the rule book of our share trading brethren, who'll sell their "losers" and only hang on to their "winners" - without getting emotional about it or fretting about tax consequences.
To be continued in “Property Investing Heresy” - Part 2...
Coming up, we'll take a closer look at the issue of potential tax and other cost consequences when selling, and ask the important question: Are you investing to save tax, or to make money?
Simon Buckingham is Director of Results Mentoring and a highly experienced investor. Simon has been investing in property for over 15 years using a broad range of strategies including positive cash flow, renovations, property development and commercial properties, both within Australia and overseas.
Holding university degrees in Commerce and Law, and with over 10 years' experience as a business consultant, Simon turned his back on corporate life forever following the births of his two children and now spends his time investing, developing property, supporting multiple charities, and building businesses - while teaching others how they can do the same. He has personally coached hundreds of investors in techniques that can be used to profit from property in any market conditions, regularly facilitates public workshops and provides other free resources for property investors through ResultsMentoring.com, and has presented to thousands of people at property conferences and seminars around Australia and New Zealand.
Simon writes the highly regarded Sophisticated Property Investor e-newsletter and his opinions on the property market and real-world investing strategies have featured in Your Investment Property magazine, Smart Property Investment, Channel7 News at 6, Kevin Turner's Real Estate Talk, and Property Observer. He is co-author of the critically acclaimed property book The Real Deal: Property Invest Your Way to Financial Freedom, and a founding Mentor in Australia's award-winning personal mentoring service for property investors: the RESULTS Mentoring Program.
Disclaimer: while due care is taken, the viewpoints expressed by contributors do not necessarily reflect the opinions of Your Investment Property.