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There is an old saying in real estate circles that you should buy and never sell.
While that sounds good in theory, it’s not a sound strategy in practice.
Firstly, most investors will consolidate their portfolios at some point in their journeys to pay down their loans and start living more financially free lives.
There is not much point doing all that hard work if you don’t get to enjoy after all!
However, the main issue with this concept is that savvy investors are not afraid to offload underperforming assets.
That’s because they don’t want to miss out on opportunities elsewhere and research shows that future growth in their location might take a long while to arrive.
So, here are three times when you should consider selling an investment property.
1. FOMO
Many investors wait too long to sell their property because of a recent boom-like market cycle.
In essence, they have FOMO or Fear Of Missing Out.
Perhaps the market has experienced strong growth for a year or two, but they fear that if they sell now, they will miss out on any future growth.
Savvy investors know the signs of market peaking and choose that moment to sell their properties so they can maximise their profits to invest elsewhere.
Unsophisticated investors, on the other hand, leave it too late and end up with a property that starts to go backwards in value – Gladstone in Queensland is a good example of this over the past decade.
Investors who sold at the peak of that market made solid returns, whereas those who had FOMO are now stuck with a property that is worth far less than they paid for it.
2. The Waiting Game
Far too many investors get stuck in a growth waiting game.
They may have bought into a location because of the promise of infrastructure that has yet to materialise, so they sit and wait in vain for the returns they thought they’d make.
Of course, sophisticated investors only ever buy investment grade properties that have a number of strings to their bows, so they are never reliant on one factor to stimulate price growth.
Unfortunately, often because they don’t want to feel like they “failed”, investors will stubbornly hold a property that is unlikely to do anything spectacular.
The thing is, holding that property would actually be a failure, not selling it.
3. Opportunity Cost
Educated investors recognize that there are myriad markets across Australia that offer better chances of capital growth over the short- to medium-term.
That’s why they are not afraid to sell a property that is not kicking any major capital growth goals.
Sure, there are costs involved in selling and buying elsewhere, but selecting a location and a property with strong price growth potential means they are likely to make that back in equity within a year or two.
Conversely, by naively hoping for a market upswing that has no bearing to reality, they are likely to be out of pocket by much more over the long run.
In fact, holding an underperforming property might end up costing them hundreds of thousands of dollars.
If you can only afford to own two or three investment properties, then you must make sure that you own the best properties you can afford.
Selling an investment property that is not doing its job, which is creating wealth for you, is not a bad thing.
Rather, it is a sign that you recognize there are better opportunities out there that you don’t want to miss out on.
That is what that smartest investors do all the time, so they stay one step ahead of the investment pack.
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