Expert Advice with Todd Hunter. 25/10/2016
We are regularly asked questions on when investors think they should sell their investment property? And without taking on the advice we give them, some sell shortly afterwards which is way too early.
As a Buyers Agent, I also offer the clients the courtesy of letting them know that a market has reached the peak, so that if selling their property is part of their Game Plan, then now is the time to start that process.
Now, this is good, free advice and I find that only around a third of investors will actually sell. One of the reasons they might sell is that they may have a reasonable home loan, and by selling when the market peaks in value, they can off load their property for a good profit. They can then grab that profit and pay down the bad debt, being their home loan. The trick is to then get straight back on the investing bandwagon. Now that your home loan is lower, your monthly repayments are lower and your equity has increased. It’s the perfect environment to go and invest in two or three more properties. In the right locations of course, and always one at a time!
Basically, repeat that process until your home loan is close to $100k or less. Then your investment properties become “Keepers” - properties that you hold long term, through many cycles, and allow the rents to continue to increase. The end result will be that the rent from these properties end up replacing your income. Now that last $100k or so, makes for very easy repayments that you can pay down yourself. In the current low interest rate environment, the interest on $100k is only around $76 per week. Meaning that everything extra comes directly off the principle. So tackle that last portion as fast as you can.
Now, if you’re going to ask a professional investor where you should be investing, that means you are either time poor or you have accepted that this is what they are good at - or both. So if they recommend that you should be selling now, or hold on a bit longer, then you really should be listening to them. Of recent times, I have had a few clients sell either too early, or too late. The problem with that is, not only didn’t they listen to my advice but more importantly they didn’t make as much profit on the property as they could have. When buying in the low part of the property cycle, not only are the prices cheaper and there is zero competition from other buyers, but you can find highly motivated vendors to get a much higher discount off the list price on the property. The reverse happens when the market spikes. Now spikes are just that, they occur rapidly. So when a market spikes, you can see gains of $80k - $100k in 6 months. Sell too early and you miss the cream. Miss that spike and prices reside instantly. Timing your entry into the marketplace is equally as important as your exit strategy. Take the advice!
Lastly, if you’re going to use a property Buyers Agent, they really should be a professional investor, not just an active investor who owns 4 or 8 properties. Really they should own 20+ properties if they are going to give sound advice. There are many new companies that have recently been established purely due to the low interest rate environment. Many only own a few properties, of which they probably used a Buyers Agent to buy for them.
Todd Hunter is director, buyer’s agent and location researcher for Sydney-based wHeregroup. He is an active property investor himself and amassed a portfolio of 50 properties by the age of 31. For more of Todd's musings, visit the wHeregroup blog.
Disclaimer: while due care is taken, the viewpoints expressed by contributors do not necessarily reflect the opinions of Your Investment Property.