Real Estate Selling Strategy: when is the right time?
By David Baruffi, Financial Advisor
While there are many factors involved in successful real estate investing the most crucial decision you have to make is when to sell.
Ideally you purchase your real estate investment property at a low point in the market cycle, keep it for the long term and sell it when the market is booming and you have retired and have little or no taxable income. This way you benefit from the compounding capital gain while you are paying tax and from the Capital Gain Tax (CGT) discount when your income is low.
However life isn’t always that kind. I have a number of clients who saw the property market boom while they were working and dip when they retired. This has impacted on their retirement planning as they struggle to make the decision to sell while they are holding on to their dreams of getting boom time prices in a down market.
How do you avoid the market cycle pitfall?
To avoid the market cycle pitfall, you can set out a ‘Trigger Strategy’ for the sale of the property. That can be a time line or price or other such event that you can track and thereby remove some of the emotion from the selling decision.
For example, you have purchased a property for $500,000 at age 45. When do you sell it? It depends on a number of things. Making the decision to sell will always leave you wondering if you should have held longer of sold earlier. If you set your goal, such as when you turn 66 or when it reaches $1m in value then you have a clear process to follow to make the decision. Remember real estate is like any other investments that cycle from good times to bad. When times are good we think they will never end, when they are bad we think they will never improve.
Selling the property for $1m at age 64 and dealing with the CGT is better than waiting until you’re 66 and selling the property for $750,000 or waiting for another 10 year cycle to peak before you sell. (A bird in the hand……)
In summary, when investing in property have your exit strategy mapped out before you buy. Speak to your financial advisor about the right strategy for you.
David Baruffi is an authorised representative and credit representative of AMP Financial Planning. Blueprint Planning Pty Ltd (ABN 78 097 264 554), trading as Blueprint Wealth, is an Authorised Representative and Credit Representative of AMP Financial Planning Pty Limited, Australian Financial Services Licensee and Australian Credit Licensee 232 706.