It's Time To Talk About The 'S' Word
Buy and hold investors hate to sell, but it can be the best decision to boost your portfolio, says Aaron Tunstall.
1 November 2018
You’re probably a buy-and-hold investor, right? You know all the clichés about “time in the market, not timing the market”, and you understand that selling too soon can prevent you from maximising your profits. That’s a perfectly sensible attitude in many cases and I would never suggest that you jump in and out of the market or sell a property that’s got great longterm prospects.
It must be said, though, that some Kiwi investors cling to their properties like barnacles to a ship – even if the ship isn’t going anywhere. Just because you’re a buy-and-hold investor, doesn’t mean you should never sell. Contrary to how it can sometimes feel when you’re talking to other investors, you’re not playing Monopoly. It’s not a competition for who has the most houses. Even in Monopoly, a hotel on Mayfair is a lot more useful than a whole load of single houses up the first side of the board, just like a block of three smart flats in the right location is a better investment than 10 individual houses in a cheap area with terrible tenants. There are plenty of good reasons to sell:
You could hit your goals faster with another property Property investment is a means to an end: financial freedom. The properties you already own may be helping you get there, but if you’re serious about your goals there could be better places to put your money. Many owners have properties that they hold onto through inertia or uncertainty, when they could sell and buy something that will get them ahead more quickly.
‘“Never sell”’ would be a great strategy if your aim was to be someone who owned a lot of properties - surely though, you have more interesting goals than that?’
Say you owned one run-down threebedroom house in a good area that is slightly cashflow negative. You could potentially sell it and buy two units in an almost-as-good area that will double your income and appreciate in value almost as quickly. That extra income could go towards your home mortgage or towards another property. Think about your strategy and your goals – do you need to move your money?
You could improve your regular cashflow Properties commonly drain your cashflow in two ways: by being negatively geared and through high maintenance costs. You know up front when you’re going to be negatively geared and hopefully it won’t last long. However, if you’re suddenly out of a job or hit with a financial set-back, selling a negatively geared property and buying a cashflow neutral property could help you out significantly.
The maintenance issue is one we see all the time: owners of apartments love the fact that they are so low-maintenance. Kiwi investors are pretty relaxed about how much maintenance their standalone rentals will need – they massively underestimate the costs and then when the roof needs replacing, it’s a scramble to find the cash. With the possibility of new higher standards for rentals coming into effect, offloading an old run-down property and buying something with lower maintenance costs could save you a lot of headaches.
You could enjoy your money Buying property means making sacrifices. At some point, though, you should be able to enjoy the wealth you’ve accumulated. If you have a property that’s stressing you out, or your LVR is keeping you up at night, maybe it’s time to sell. If you have a dream family world trip or you want to buy a boat, I don’t see why you shouldn’t sell a property. Or possibly you need the money if you’ve got a health issue, or you want to retire early. Your properties are supposed to be working for you, not the other way around.
“Never sell” would be a great strategy if your aim was to be someone who owned a lot of properties. Surely, though, you have more interesting goals than that. Ask yourself if your properties are helping you get there as quickly as possible – if they are, keep on holding. But if your money could be working harder for you elsewhere, it might be time to think about the “S” word.
Aaron Tunstall is the general manager of award-winning Impression Real Estate, which specialises in property management and sales and manages over 1,750 Auckland apartments.