Investment properties can be incredible wealth-building assets – whether you’re purchasing in Spain, Australia, or the US. All while appreciating over time, they provide:
- Passive income.
- Tax benefits.
- A hedge against inflation.
However, as you would with any investment, there comes a time where selling might be the smartest move. Knowing when to sell, how to maximise your gains, and where to redirect your finances afterward does wonders for your portfolio.
1. You’ve Reached Your Financial Goals
Greed is a surefire way to lose your gains – it doesn’t matter whether it’s in stocks, crypto, or the real estate market. If you’ve reached or even surpassed your original financial goals, that’s when you call it a day.
Selling when you’ve achieved your financial objectives is how you realise your profits while you’ve still got them. Otherwise, you’re just increasing your exposure to market fluctuations – especially when it comes to volatile markets like real estate.
Redirect Strategy
Once you’ve cashed in on your initial goal, put it right back into another investment vehicle. Diversifying across different asset classes, from stocks and bonds to other forms of real estate, is how you spread risk and keep your portfolio stable.
2. Property Value Has Plateaued or Decreased
The real estate market tends to be fairly cyclical, which means a property’s value can peak or even decline because of broader economic factors. If it looks like your property’s value is starting to stagnate or decrease, you might be best cutting your losses and selling now – especially if it’s showing no signs of rebounding.
Don’t fall for the sunk-loss fallacy – holding onto an underperforming property is likely to cause losses due to:
- Missed opportunity costs.
- Maintenance expenses.
- Property taxes.
Redirect Strategy
If you’re selling a property in a downturn, take what you’ve got left and put into something with stronger growth prospects. This could be stocks or even mutual funds – chances are they’ll yield better returns than a property in a stagnant real estate market.
Keeping the funds liquid means you’re also able to re-enter the market at a lower price point should conditions improve in the future.
3. High Maintenance Costs and Repairs
Given that you’re not living there (you could be in an entirely different country altogether), investment properties are notoriously expensive to maintain – especially if they’re older or in need of constant repairs. High maintenance costs can easily erode any income you’re making from rent, which gives you more of a financial burden than a profitable investment.
If you’re finding that maintenance is eating into your profits, or if major repairs are on the horizon, you might be better off selling so that you can preserve capital and avoid making costly renovations.
Redirect Strategy
Redirecting funds from a high-maintenance property into the following low-maintenance investments can reduce your workload and provide far more predictable returns:
- Stocks
- REITs (Real Estate Investment Trusts)
- ETFs
If you still want some exposure to real estate, you might find it more suitable to move funds into real estate crowdfunding or fractional property ownership – this way, you don’t get involved with hands-on property management.
4. Rental Market Decline in Your Area
Location is a key driver in an investment property’s money-making potential, but a once-thriving rental market can easily decline over time. If rental demand in your area is decreasing, vacancy rates are high, or rental prices are stagnating, it could be time to reevaluate.
Low rental demand could mean a lower return on investment (ROI) and will present challenges when it comes to maintaining a stable cash flow. So, moving on from a weak rental market allows you to reinvest in an area with potentially stronger growth prospects.
Redirect Strategy
After you’ve sold the property, look for high-growth markets for real estate investments. The following examples are normally reliable when it comes to rental demand:
- Cities with Expanding Job Markets
- Cities with Low Employment
- Areas where Population Growth is Increasing.
Alternatively, you might find better returns over time if you decide to reinvest in the following:
- Growth Stocks
- Emerging Markets
- Other High-Potential Assets
5. Significant Market Appreciation
If your property’s value has appreciated significantly due to market conditions, try to avoid being greedy and lock in those gains before the change. Timing the market is never easy, but if you’ve seen substantial growth and market analysts predict a peak, selling now is how you can cash out before a potential downturn.
A “sell high” strategy might be a bit blatant, but it’s particularly beneficial if the proceeds go straight back into assets with more growth potential or if you use them for other financial goals you may have.
Redirect Strategy
Consider putting those profits back into other undervalued assets that may provide more room for appreciation. This could include stocks or even mutual funds. Another approach would be to use the proceeds to build a diversified portfolio – this could include:
- Growth Stocks
- Bonds
- Other Real Estate Investments in Emerging Areas (where prices are still rising)
6. Your Financial or Life Goals Have Shifted
Any major life changes you go through – whether that’s starting a family, retiring, or getting married – can have an impact on your financial goals. If the property no longer aligns with these goals, selling might provide the flexibility you need.
Real estate investments tend to be far more illiquid than other investments you can sell at the click of a button (not to mention that they require active management), so selling may simplify your finances and free up funds for new priorities.
Redirect Strategy
Put the funds into an investment that better supports your new goals. For example, if you’re approaching retirement, consider something like bonds, dividend stocks, or index funds – anything that prioritises income and stability.
If you’re aiming for long-term growth, you’ll be better off opting for more aggressive investments like tech stocks or global market ETFs.
7. Tax Implications and Capital Gains
Tax advantages, like the capital gains exemptions on primary residences, unfortunately do not apply to investment properties. However, if you’ve held the property for several years and have substantial equity, selling could help you strategically plan for taxes.
For example, tax-loss harvesting might allow you to offset gains with losses from other investments. Just make sure you consult with a tax advisor before you sell an investment property – this way, you can ensure you’re aware of any tax obligations and potential deductions.
Redirect Strategy
If tax savings are your priority, reinvest in tax-advantaged accounts where growth is either tax-free or at least tax-deferred – IRAs or Roth IRAs are good for this.
8. High Mortgage Rates and Refinancing Options
If you’re paying a high mortgage rate and refinancing isn’t an option, you can always just sell the property to eliminate that cost. High rates essentially erode your profits anyway, so it can be very challenging to build equity this way.
Selling can release you from these financial burdens and open up the opportunity to invest in lower-interest or higher-yield opportunities.
Redirect Strategy
If interest rates in other areas are lower, you should consider reinvesting in real estate within those markets – using the proceeds to buy a property outright in cash also works as you can eliminate the mortgage burden entirely. Alternatively, put the funds into income-generating assets like dividend stocks or bonds – this allows you to supplement your income without the need for a mortgage.
Final Thoughts
Are you ready to sell your investment property and reallocate the funds? The next best step can be to reinvest right back into another emerging property market, so utilise Upscore’s Finance Passport to secure the best loan option available – whether domestic or across borders. Talk to a broker today and explore your investment opportunities!“
