Property Investment – How Long Should You Hold Onto Your Property

YNM Real Estate
19 December 2021

Do you own an investment property or property portfolio, and are you concerned about how long you will need to hold on to these properties to realise the maximum return on your investment?

There are several things to consider – the state of the market in the area in which your property is located – is it a rising market? A falling market? An area earmarked as a future growth opportunity? Do your research and consult property experts familiar with the areas involved.

You will also need to factor in the cost of selling a property that you own and possibly reinvesting in one or more different properties. These costs will include:

  • Current valuation of the property
  • Loan establishment fee
  • Lenders Mortgage Insurance and associated costs
  • Professional inspections
    • building inspection
    • pest inspection
    • strata report
  • Stamp duty
  • Legal fees
  • Agents commission
  • Possible cancellation costs for the mortgage
  • Capital gains tax (CGT)

Don’t forget to add the cost of your own time as well. Depending on the sale price of your property, the total cost of selling could be around 3.5% of the value of the property without even including CGT. You should consult a tax expert to get at least a rough gauge of the cost of CGT – but this could be as much as 10% of the property value. Add in say 5% on entry costs if you are re-investing – and this adds up to a considerable portion of the sale price of the property.

General rule – don’t sell. However, sometimes it is the exception that proves the rule – so this is really quite a subjective situation that you will need to think through carefully.

In some investor situations – for example if you are renovating, subdividing or developing, quick turnaround of investment purchases is indicated as you add value to each purchase, and then realise the added value to fund additional opportunities.

An investor should sell if the cost of recycling equity is less than the opportunity cost of an alternative investment, and the potential for future capital growth has been considered for both options.

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