While growing a portfolio by acquiring assets stands as one of the top priorities for property investors, selling a property might just be the right next step to secure long-term growth. So, how do you know if it’s time to sell?
After spending years building a nine-property portfolio, investor Kevin Sum decided to sell off two of his real estate assets in order to accommodate more opportunities for wealth creation and minimise risks.
One of the properties he sold was a two-bedroom unit in Sydney”, which he bought in 2009., a “vibrant area at the centre of
Back then, he paid $258,000 for the property. In 2018, it was sold for $475,000.
“I was getting... $350 rent from day one… so, at least, I know that I’m positively geared and I don’t have to worry at night thinking what happens if I lose my job or something bad happens to me,” according to Mr Sum.
The other asset he sold was a “regional rural” house in Orange, which he bought for around $145,000 between 2011 and 2012. The buyers paid $180,000 for it in 2017.
Even considering the holding costs for five years – mortgage, stamp duty, lender’s mortgage insurance, agent’s fees, and more – Mr Sum believes that he earned a fair amount of money through the sale of the Orange property.
He said: “It didn’t really cost me much to actually hold. I was getting 200-odd dollars every week in rent and the good thing was I actually revalued my place and I got equity out.”
“Back then, I didn’t have much money, so that enabled me to purchase other properties from that.”
Mr Sum’s experience in off-loading investment properties proved that selling assets is more than realising the value of a property – it also entails factoring in the holding costs that the investor had to shoulder over the years and preparing for the cost associated with the sale.
Out of his nine properties, Mr Sum decided to sell the Granville unit and the Orange house because he believes that they have already “reached their peak” in terms of wealth-creation potential.
While the properties might still have risen in value had he kept them, there’s a much better wealth-creation potential in buying new properties, according to him.
“I was thinking… I can keep it there and, maybe, in another five years’ time, it might go up by… $50,000 for Granville and around $30,000 for Orange,” Mr Sum explained.
“But why don’t I realise the cash, free up some of my money and my borrowing capacity to buy something similar amount of money but will make me more money or will go up more in value?”
At the end of the day, it's all about “the utility of the money,'” he said.
Similarly, when deciding which property to purchase, it’s important to choose the asset that will provide a better use of the investment money.
Mr Sum’s advice for budding property investors: big picture is not always the best picture.
Property investment may be deemed as a long-term game, but sometimes, investors are faced with a choice between waiting for “slow, organic growth” and seeking opportunities for better growth.
In his case, Mr Sum decided that, after seeing huge growth in his properties since 2009, it’s time to find better wealth-creation opportunities and ultimately take advantage of the stabilisation of the property market.
According to him: “For example, with the Granville one, I might be able to buy two in Brisbane which go up by say $150,000 in total.”
“If I keep the Granville one, I only predict say $50,000 worth of growth, so why not off-load Granville and put the money in Brisbane or wherever, which might potentially give me more than $50,000?
“This strategy will give me greater diversification because I can have two properties in different markets – a good strategy,” Mr Sum concluded.