Is your lease term nearly up? Wondering if now is the right time to sell your investment property? Here are a few questions you can ask yourself, helping you understand whether the time is right.
What am I currently getting in return?
Yield is your annual rent divided by the purchase price of your property. It tells you how much cash your rental property produces each year as a percentage of it’s value. Example: Calculating your rental yield
- Your property was purchased for $380,000
- It rents for $400 a week * 52 weeks per year = $20,800
- Total rental costs are $5,000 (e.g. rates, property management fees, insurance etc)
Gross yield is $20,800 / $380,000, or 5.5%. Net yield is ($20,800 – $5,000) / $380,000, or 4.2%. 3 simple ways to increase your rental yield:
- Installing or updating amenities such as a dishwasher, heating and cooling.
- Adding extra storage space
- Including a car park
You can get an updated rental assessment at any time to make sure you’re charging enough rent. You can do this through your property manager. If you’d like to find a new property manager for your investment property, you can compare property management fees and services at LocalAgentFinder.com.au.
Is the value of my investment property increasing?
Capital growth is your property price increase divided by the purchase price. To estimate your property’s capital growth, a local real estate agent can give you a property appraisal. Example: Calculating an estimate of your property’s capital growth
- Your bought your property for $380,000 in 2011
- Your property is valued at $520,000 in 2018
Capital growth is ($520,000 – $380,000) / $380,000. This is 37%, or 5.3% per year. However, you’ll need to take the costs of buying, selling and inflation into account too. Remember, this is an estimate. Your property is worth what someone is willing to pay for it. If you’d like to get an estimate of the value of your property, you can compare real estate agents at LocalAgentFinder.com.au, including sales history, marketing fees, commissions and homeowner reviews.
When did I buy my investment property?
If you bought your property under five years ago, you may want to consider holding it as you’ll want to cover the expenses of purchasing it. (For example, stamp duty, conveyancing etc). Property is more often than not a long-term gain. But that said, depending on market conditions, it could be worth getting a property valuation or appraisal to see if your investment property value has increased enough to cover the costs and make a profit.
Is the market right to sell?
The best time to put your property on the market is when you’re in a seller’s or ‘hot’ market. If the market is warming up, it could be a great time to consider selling your property. You can read more about seller’s and buyer’s markets here.
When to sell my investment property – what’s next?
If you’re unsure whether to sell or not, the best place to start is finding a great real estate agent who has deep knowledge of the local market. They can help you decide on whether now is the right time to sell your investment property. You can compare agents at LocalAgentFinder.com.au, including sales history, commissions, marketing fees, homeowner reviews and more.
Most real estate investment properties are long-term income solutions. However, there does come a time when all the signs point to the fact that selling an investment property is the right choice. Knowing when the time is right to sell your property isn’t always straightforward, however, but these are the factors that could indicate that the time to sell is here.
The main reason for investing in property is to make a profit every month. Sometimes though, it may turn out that your property starts delivering more negative monthly turnovers than positive and this is a sure sign that it’s time to sell. If the rental of your property simply isn’t giving you the returns that you need to cover your bond, rates and other costs, then it’s time to wave goodbye.
It’s always a good idea to get a rental assessment, especially if you have upgraded amenities on the property since the last time you got one. You could simply be charging too little rent and a rental assessment should tell you how much you can increase it by and hopefully come out with positive cash flow. However, that’s not always the case and you could be better off selling your property than losing money on it every month.
It’s important to take the capital growth of your property into account. This is how much the value of your property has increased divided by the purchase price. Getting a real estate agent to do an appraisal is always the best idea, as they are experts in the market and will be able to give you a market-related number. Remember that inflation and the costs of buying and selling must be taken into account too. Find an expert real estate agent through LocalAgentFinder and they will let you know whether the increase in property value is worth taking advantage of.
The cap rate of your property is the income-expenses/value. In general, investment properties should have a cap rate of between 5 and 10% but these could change per year on the market. An increase in property taxes, a drop in rental market demand, maintenance increase and high utility bills are just some of the things that could impact your cap rate. Add these monthly expenses and then subtract it from the property’s monthly income. Then divide this by the value of your property. If you end up with a cap rate of less than 5% then chances are it is time for you to sell your property.
If there are more buyers than sellers looking for property in your area, then this could be the time to get above value offers for your property. You can get more in-depth information on a buyers and seller’s market here. A real estate agent sourced through LocalAgentFinder will be able to expertly inform you on when the best time for selling an investment property according to trends within the market.
If you aren’t 100% sure about whether you should be selling your investment property right now then the best thing you can do is get in touch with a real estate agent via LocalAgentFinder. An experienced agent will do all the hard work for you by valuing your property, researching market trends, and more. They will be able to give you a definitive answer on whether selling your investment property now is the best idea for you.