How do you decide when it’s time to sell your property?
The average individual has an annual physical examination to check up on his physical condition. Your investment, like you, needs an annual check-up to ensure it is still functioning well and is healthy.
There are four possible motivating factors, any of which will tell you it’s time to get out of you present real estate investment and into another.
Incurable problems
If you are experiencing problem that you cannot cure, it is probably the time to sell. Hopefully, this will not happen because your chance for realising appreciation on the sale will also be affected by the problems your property is experiencing.
These problems include such things as a deteriorating neighborhood, major expenditures needed to upgrade the property, or continual vacancies due to an abundance of more desirable rentals in your area. Each of these problems could have been avoided by carefully locating an investment.
Changes in goals or situation
Investors may decide it is time to sell because their investment criteria have changed. They may be ready to retire and take life easy. They may want to make one last change in properties and structure it to give a lifetime steady income. Equity buildup may no longer important to them. Their heirs will have the concern.
Perhaps something has happen in their lives that has made a change in their investment goals and the present property does not fit their long-range investment program. They may be tired of rental apartments and want to try a small office building or shopping center. Perhaps they have suddenly changed jobs.
Whatever the reason, investors from time to time have logical reasons for an investment change, and I stress logical.
Profit
Assuming you have been giving your investment and annual check-up, you have probably noticed that your property is worth considerably more than you paid for it. This fact really hits you when the property next to yours sells for almost twice what you paid for and you “know” that yours is a better property.
At this point of time, you may want to rush out and sell it, since there is no capital gain tax in Malaysia on your big profit. However, if you still want to own the property, you may consider refinancing it and taking some profit out of it.
Increased equity but decreased return
The remaining reason for selling your property is the result of a large increase in equity brought by a combination of appreciation and mortgage principal reduction. This is where many investors make a drastic error in analysing their present position in their property.
Once you include your equity buildup and mortgage reduction into the calculation of your return on investment after the first year, if your total return continue to diminish each year, this will be an excellent indication that it’s time to sell. We will further discuss this analysis with example in another post.
In short, you should consider selling or exchanging your property when any of the four reasons are affecting the return you are making on your invested capital.
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Increased equity but decreased return
It is also known as cap rate, right?
Hi Jason,
Different.
“Increased equity but decreased return” means that when you calculate your return with the equity of property taken into consideration, you will find that your actual return is shrinking, while equity of property is increasing over time from your accumulated installments.
Cheers
Cheers