I used to like the idea of holding on to properties forever to collect rent, but my view has changed recently. The main reason is that while collecting rent every month and seeing my bank account inflate is lots of fun, it’s also taxable at my income tax rate. In contrast, capital gains in this country is tax-free, and who’s to say seeing a lump sum in the bank is any less fun?
Some may protest that they may not be able to find a replacement investment to put their money in, and with inflation numbers running up and interest rates so low, they’re losing money by the day. I would argue that there are ALWAYS under-valued properties for sale, but you have to find them and they must fit your profile. Some are hard to find, while others may not fit your criteria or budget. You just have to do your homework, or get a good agent to do it for you.
A lot of people spend a lot of time researching when they are buying an investment property, but neglect to think as hard about selling it. Perhaps they wanted to keep it forever for rental income like I did, or they think that they would just think about it when the time comes. However, when the time comes, owners tend to over-estimate the value of their property, which leads to the situation where they are always asking for above-market prices which don’t get done. Owners are left holding on to property which may be growing in value but the value is not easily realisable.
Therefore, I argue that there is a need to think about your exit strategy. As an example, when I am deciding whether to sell a property, I make my judgement based on certain criteria: