When is the Right Time to Sell Property for Optimal ROI?

Whether you’re new to property investment or already have a few investment properties in your portfolio, the big question is: How long should you hang on to it?

Every property investor wants to maximise their returns, so it might be tempting to keep a property as long as it generates rental income. However, rental income isn't the sole factor when evaluating your investment. Look out for these five signs that might mean it’s time to think about selling your property.

You face new personal or financial circumstances

If your financial circumstances have changed, and having cash on hand becomes more crucial than waiting for future appreciation, it may be time to consider selling the property. Here are several reasons that could prompt this decision:

• You need to relocate.
• Your business or job circumstances have changed, and you need immediate funds.
• You need to cover medical debt.
• You want to retire comfortably.
• Your children are entering university, and you need to finance their education.
• You no longer want to handle the responsibilities and hassles of managing a rental property.

If you face any of these situations, selling the property can inject the cash flow you need to adapt to new circumstances, making selling it more beneficial than holding on to it.

Your property is losing money

Property investment guidelines from industry experts advise you to evaluate your property’s ROI using the 80% cash flow rule. This rule states that your rental income should cover at least 80% of your monthly loan instalment.

If your property does not meet one of these guidelines, you are likely losing money. This is because other costs must be factored in, such as land tax, rental property income tax, management fees, maintenance, and repairs.

At this point, you need to evaluate whether the potential for long-term appreciation justifies the ongoing expenses. If the financial strain outweighs the expected benefits of holding on to a property, then selling may be the most prudent option. For example, if your investment property is only able to fetch RM2,000, while it costs RM2,500 to maintain (including loan instalments and maintenance fees), you may want to reconsider its worth to you.

Better income source

Property investment can be highly lucrative, but sometimes, a property may not appreciate as much as you had expected or hoped for due to a market downturn or oversupply of similar properties.

If a new opportunity arises and your investment property is no longer the best source of income, it may be wiser to sell the property on the subsale market and reinvest in more promising ventures. This is particularly true if the new opportunity offers a more passive and less time-consuming income stream than managing an investment property.

In the event you have identified this new opportunity such as a unit trust fund or business idea, you should also assess whether this alternative income source is indeed better than your existing investment property. You should take into account risk-reward, time and resources required as well as potential returns.

Historical market trends show a downward turn

Understanding market trends is a crucial aspect of property investment. Knowing past market fluctuations and their causes can help you anticipate future downturns. For example, global events such as the COVID-19 pandemic caused a worldwide lockdown resulting in a downturn in all markets.

If there are signs that the market is heading towards a decline, it’s often wise to sell before values drop. Doing this will help you avoid the burden of an investment property that costs more to maintain than it generates in income.

Remember that market trends are local and price fluctuations could vary in Malaysia depending on specific regions and even type of property. Therefore, it's important to stay informed about residential market performance in the specific area of your property to ensure you’re selling properties at the right time. You can do so by reading the news or periodically checking-in with real estate agents in your area.

Tax implications

Tax changes can profoundly affect property investment decisions, particularly if you own multiple properties. For example, the Malaysian government periodically adjusts income tax rates. If these changes substantially diminish the income generated by your investment properties, then it may be a good time to sell.

While tax increases can sometimes result in higher rental rates, such adjustments often take time to reflect in rental market rates. If enduring these financial shifts is not feasible, selling your investment property and reallocating the funds to other opportunities might be a more viable path forward.

Conclusion

Ultimately, the choice to hold onto or sell your property is based on your unique circumstances and goals. By staying informed and evaluating the returns  of your investment property, you can make more strategic decisions. This approach helps maintain the stability and profitability of your investment properties, ensuring you make the most of every opportunity.

💡 The information provided above is purely for educational purposes.