7 Reasons Investors End Up Selling Their Properties, Should You?
A decision to sell a long-term asset such as a property can sometimes be a challenging decision for an investor amidst tough economic times.
Every property investor will be confronted with this question at some point in their investment journey. Therefore, knowing when to sell or hold on to your investment property is essential when building a portfolio.
Due to the long-term nature of the property investment journey, the general guideline is that property should at least be held for five to ten years to allow the investor enough time to study market conditions and further assess the viability of their portfolio. Below are reasons investors end up selling their properties, and whether you should too:
- Exit strategy – some investors venture intoproperty having already developed an exit plan, which consists of selling their property portfolio and using the funds for alternative business interests.
- Recycling equity– this involves selling a property and using the equity to buy a better performing one. When going for this strategy, it is essential to take into account the costs involved in selling and acquiring a new property and whether the returns will be better in the long-term.
- Poor performance –if a property fails to provide good rental yield and capital returns for at least five to 10 years, it may be considered to be performing poorly and eventually sold.
- Diversification – property investors may sell some of their properties to unlock capital and diversify their financial risk into another asset class, such as listed equities, bonds or cash investments.
- Deteriorating neighbourhood – selling property due to unfavourable changes in the neighbourhood is common for inexperienced investors who did not conduct proper research when acquiring the property. This could also have been the investor’s former place of residence, which they decided to rent out after moving out.
- Life-changing events –major life-changing events like getting married, having children, divorce or an empty nest may lead investors to sell their properties and seek a new direction in life.
- Market timing – new investors who do not adequately understand how the property cycle works may be tempted to sell when market conditions seem unfavourable. In addition, investors could take advantage of the recent repo rate cuts by fixing their rates as opposed to offloading their investment property all together.
It is not advisable for clients to try and time the cycle because no one knows for sure what that will look like going forward. However, there are many circumstances and underlying factors that may lead you to consider selling or holding your investment property. The decision should ultimately be based on your current circumstances, investment strategy and what you aim to achieve.
In cases where you are hard-pressed towards selling your investment properties due to financial strain, voluntary selling options such as the Quick Sell® process will help you find the best value for money when you list your property through them.
Words: Praven Subbramoney, CEO of Private Bank Lending at FNB.