5 reasons you won’t want to sell your buy-to-let property

Questions to ask when you review your property portfolio

I always say that you should have an exit strategy when you invest in any asset. A little while ago, I published an article that discussed why you should never sell investment property, and why you might. It detailed seven reasons why you might decide to sell your investment property.

For me, selling a property is a big deal. It’s not a decision that I take lightly. It’s a decision that requires a lot of thought beforehand. Here, I explain the questions I ask of every property during my portfolio reviews. The answers are why you won’t want to sell a buy-to-let investment property.

1.      How long ago did I buy the property?

Property is a little like a fine wine. You can’t uncork it straight away. It must be left to mature and reach its full potential. It’s a long-term investment.

Selling property too quickly can easily lose you money. I laugh at the supposed profits touted on some of the property programmes on UK television. People buy properties at auction, then refurbish them and sell them for a big profit. Yeah, right.

Now, I’m not saying that this can’t be done, but what these programmes always fail to mention is things like stamp duty, legal costs, auctioneer and estate agent fees, and capital gains tax. These costs can wipe out profits and turn what should be a good performing investment into a disastrous loss.

The time I expect to hold a property is forever. Very, very rarely will I sell within five years. The impact of transaction costs and taxes is just too great.

2.      How well is the property performing?

I invest in property for lifestyle reasons. It’s a great asset to produce life-changing income and capital gain. If I sell a property, then the money I raise must perform better elsewhere. If it doesn’t, then why sell?

If a property is producing a good rental yield, and I expect strong capital growth, then I’m not tempted to sell. Especially if the demand to rent the property is high and my tenants are good tenants.

The final factor in this part of my review is if I expect there will be any large maintenance needs coming up. If there are, I might want to sell and let the buyer deal with them.

A property with positive cash flow and good prospects? Well, I’d be mad to sell.

3.      What are the capital growth and rental income prospects?

I touched on this in question 2. This question is really more about the area in which the property is located.

As part of my review process, I’ll look at the local economy. I want to know what businesses are moving in and out, and how that is likely to impact jobs in the area. I’m also interested to learn about new developments and investment into infrastructure by local and central government. These sorts of questions help to tell me whether demand for property in the area is likely to increase or decrease.

If demand from buyers and tenants is on the up, then this will probably lead to stronger house price rises, and so I’ll be able to increase the rent I charge more easily. That’s a win/win.

4.      Is the property key to my lifestyle and investment strategy?

Now I ask how my investment strategy and lifestyle might be affected if I sell. I need to understand:

  • How will selling affect my cash flow and passive income?
  • Could I release equity to use by remortgaging instead of selling?
  • Is it helping or hindering my tax liabilities?

If my strategy is negatively affected by selling, then I don’t sell.

5.      What is the replacement cost?

I’ve also got to consider the replacement cost. Over time, the return I’m getting on the actual money I invested (the deposit) should increase. The rental yield may be, say, 5%, but the real yield on the money I invested could be 15% or 20%. Sometimes more. So, a replacement investment has got to perform exceptionally well to match the investment I’m considering selling.

Always have an exit strategy, and always make sure that at each review you ask the right questions of each property before you sell. If the property is producing the income and capital gain you expect, and the prospects for its future are good, there is little motive to sell.

To discover how investing in property could change your life, contact Gladfish today on +44 207 923 6100 and book a strategy consultation. We’ll help you identify how big a deposit you need to invest in property, where you could find that deposit, and help assess the cash flow and capital growth potential from a range of investment opportunities.

Live with passion and fun,

Brett Alegre-Wood

Brett Alegre-Wood
July 20, 2018

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