Your Life in Property - Chapter 11

Chapter 11 – Selling Your Investment

I have to put my hand in the air here and say I am not very experienced in this area. Perhaps you have more experience than me, just by selling your own residential homes. The fact is, I agree with the notion that property is held and not sold. The income from property you achieve will grow through the period of ownership, capital value will grow over time and you have an appreciating asset that be re-financed or inherited. During my investment career I have sold only 7 individual properties and all of them through forced circumstances such as a problematic building or the building being acquired for re-development. I truly believe that profit in property is by steady growth and sustainable monthly cash flows, not speculation on capital values increasing.

However, through my work as a property consultant to other investors, I have built up some knowledge in this area, working with sellers to achieve deals that they need. Therefore, I will attempt to give some guidance to this final step of your investment.

I suppose the first point we can all make is that a property should be sold, if not in forced circumstances, at the point that the market reaches is highest capital values. Easy eh? Well yes and no.

Let's look at the Yield Reward graphs back in Chapter 4 for some clues. Well, we have already seen that a period of high Yield Reward usually coincides with stable or rising capital values, the demand from investors joining the owner-occupiers pushing prices higher. So selling during a period of high Yield Reward, unless under forced circumstances is probably not the most clever approach. Perhaps the period shortly after a high Yield Reward is the point to sell. The rising capital values have pushed yields down but owner-occupiers and amateur investors buying with the expectation of continued capital growth providing a ready supply of buyers. I would agree with this timing, although it is difficult to predict the very highest point of the market. Other factors such as availability of finance, affordability ratios⁷ and the like will help refine your decision at which point to sell for maximum advantage.

I suppose it would be useful to see exactly who wants to buy your property. If the only potential buyers are professional investors, using techniques such as yield reward, then it may not be the best time to sell! However, if your property attracts a range of buyers with ready finance to a high level of their income (in the case of an owner occupier) or a low yield reward (in the case of an investor) then perhaps it is time to hand the keys over.

As a final consideration, your tax position or finance deal may determine to some extent when you consider to offload your investment. Capital gains tax may reduce significantly after a certain length of ownership or your finance deal may make a hefty penalty for early redemption. However, if you stand to make a large profit then please enjoy it – you have earned it! Perhaps you could spend the money on a new property. Now where should you look.......

7 The ratio of average house prices to average wages