Should I Sell My Investment Property Or Keep It?

Should I sell my investment property or keep it? This is a question that at some point in your property investment career, you are going to have to ask yourself. It’s important to know how to analyze this question and how to make the right decision for yourself at the time.

Today I want to really tackle this question and to help my listeners and my readers understand what thought process they need to go through and what analysis they need to do before they make this decision.

First A True Story…

A friend and a property mentor of mine once talked about his battle with this decision which I found very interesting and very helpful.

He was at a point in his career where he was working for a church and didn’t earn a lot of money, but had a few investment properties on the side. He also had a car loan that he had to pay for each month and he was struggling with his finances.

He couldn’t afford to pay everything. His thought was “I should sell my investment property because it’s gone up in value. I should then use that money to pay off my car so that my expenses will go down and I’m not paying this car loan.”

He then went to one of his mentors and a financial adviser for him and said “I’m thinking about doing this, what do you think?”

They really talked him through it and said look, why are you selling this property which is increasing in value and actually generating a positive cash flow for you?

Why are you selling that to pay off a depreciating asset like a car which is going to go down in value over time?

This really changed his mind set and helped him to understand that what he thought was smart isn’t actually smart. That’s what I want to help do for you today and help you through this process.

Question #1: Is Your Property Paying You Money Each Month?

The first question I want to ask you, and I’ve got a few questions I want to ask you, is your property paying you money each month? Is it positively geared? If not, is there a way to make that property positively geared? If that property is paying you money every month, and the longer you hold it the more money you’re going to make.

If you’re making $100 a month for this property, what happens when you’re going to sell it? You’re going to lose that $100 a month. Can you make that $100 a month somewhere else? Why do you need to sell it if it’s actually paying for itself and paying you extra on top of that?

That’s the first question I want to ask you.

Question #2: Can You Afford To Keep Your Property?

The second question I want to ask you is for those that don’t have positive geared property. Can you afford to keep your property? If you’re losing $1,000 a month on the property because it’s negatively geared, maybe you don’t earn enough money to keep it.

If it’s only costing you $100 a month, can you afford to keep it and are there ways that you can lower your expenses by refinancing or finding some extra tax deductions so you can afford to keep the property?

It’s important to ask yourself first, is the property paying me? If it’s not, can I actually afford to keep this? If you can’t, it’s a very simple decision.

Question #3: Can You Use That Money Better Elsewhere?

If you have equity in a property, let’s say your property’s gone up $100,000 in value.

Maybe the area’s become stagnant and that property’s not actually growing and it doesn’t look like it’s going to grow in the next five years. If you sell that property and take that money out, can you then take that money and reinvest it somewhere else and make more money than if you kept it in that single property?

I know Steve McKnight who is a very famous property investor and property teacher in Australia, he utilizes this strategy. He will sell a property and pull money out of it if he knows that he can get a better return somewhere else. Ask yourself, can you use that money better elsewhere? Is there growth potential?

Question #4: Can You Access Equity Instead Of Selling?

Next question, can you access equity instead of selling? Say your property’s gone up in value and you want to access some of that money maybe to reinvest again, maybe you want to use it for your lifestyle. Can you access that equity through a bank loan rather than actually selling the property?

When you sell the property, you’re going to have to pay capital gains tax. You’re going to have to pay real estate agent commission fees. You’re going to have to pay solicitor fees. You might have to pay Stamp Duty as well. All of these fees, you will lose some of that equity that you’ve gained in the property.

If you borrow against that property, you’re not selling it. Your fees like your real estate commission and things like that, you don’t have to pay. Nor do you have to pay capital gains tax at this stage. You could actually access some of that money and then keep the property for future growth.

Ask yourself whether you can access the equity instead of selling, and if you want to access that equity.

Question #5: Is It Actually Worth Selling My Investment Property?

Also ask how much tax and fees we have to pay, and will it be worth it? Going back to what I was saying, if you sell your property, you’re going to have to pay all these fees.

Maybe you bought a property for $500,000. It’s gone up 10 percent, it’s worth $550,000. You’d love to realize that $50,000. If you sold that property, you’d have to pay real estate agent fees. 2 percent on $500,000 is $10,000.

You lose $10,000 there. You might have to pay stamp duty. You might lose $20,000 to $30,000 by selling it, and you’ve only made $10,000 to $20,000 back. Calculate those fees and ask yourself whether it’s going to be worth it to actually sell your property, or if it’s better to just keep it until it goes up in value more.

Question #6: Is This Property A Dead End/Money Grave?

The last question I want you to ask, is this property a dead end/ money grave? Is this a place where money goes to die? Is this just like a money hole that sucks up your money, and steals it, and it’s losing money, and it’s going down in value? It doesn’t look like it’s going to go up anytime in the near future.

You might have to hold this for 10 or 20 years just before you break even. If it’s a dead end or a money grave, then maybe it might be worth getting out even though you’re going to lose some money on the deal. If you stay in, you’re going to lose money longer term.

There’s going to be an opportunity cost that you’ll miss out on because you can’t afford to invest in something that’s going to deliver a better return because you have all your money invested in this property.

There are a few questions that I hope will help to get your head in the right space when it comes to asking yourself whether you should sell your investment property or keep it. I hope that it’ll help you work it out and decide whether it’s actually a good decision for you, and whether it’ll help you achieve your financial goals and move you towards your financial dreams and financial freedom.

If you want more information on investing in positive cash flow property, then we have a seven part property profit series that goes through how to find positive cash flow property, how to invest in it, how it can make you financially free.

Head over to our Get the free eBook and put in your name and email address to sign up for that master class.