Australian Property News
Time to ditch that underperforming property?
Posted on Thursday, June 28 2012 at 4:31 PM
Should it stay or should it go? This is the question many investors with underperforming properties are pondering as capital growth takes a snooze.
Property adviser Damian Collins of Perth-based Momentum Wealth says many investors are keen to free up borrowing power to reinvest in a property with greater potential for growth.
“Whether to stick with or quit a property lemon is a question that seems to be on a lot of peoples’ lips right now,” Collins says.
“When presented with this question I generally ask people if they’d buy the same property today. If the answer is no then it’s a good idea to start crunching the numbers to assess whether they’re better to quit and reinvest.”
Collins believes some novice investors find it difficult to admit they hadn’t bought wisely and tend to hold on to poor performing assets in the hope they eventually come good.
In some cases it’s better to take a loss. It’s important to first weigh up the cost of doing so – for example, the selling agent’s fees, stamp duty and the possibility of capital gains tax.
“If getting out of the property only results in a loss of around six to seven per cent of its value, then it may be worth considering.”
Buyers agent Liz Wilcox of Hot Property Specialists believes while it’s not the best time to ditch a property, it’s a good time to buy – if an investor decides to cut their losses they should buy in the same market to minimise the loss and maximise the buying power.
Wilcox says many investors blame the property but at the end of the day it comes back to thorough property planning and research.
“Investors really need to talk to an expert about what they want to achieve. For example, do they want to build a portfolio in a high growth area over a shorter period? Or are they prepared to wait for long-term growth?
“Ipswich (in Queensland) is a good example of this. Yes, Ipswich will see growth over the next 10 years but can the investor wait that long or is it better to sell and buy in a capital city where they know growth will happen sooner?”
IProperty Plan’s Mark Armstrong says when selling an underperforming property investors should consider their tax position.
“If the investor decides to sell more than one property, perhaps they should sell through different financial years to minimise tax… for some, actually holding on to a property with a loss could be an advantage from a tax perspective.”
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