Could Selling Your Investment Property Ruin Your Retirement Fund?
Thursday, 5th of May 2022

 

Could Selling Your Investment Property Ruin Your Retirement Fund?

 

In Perth’s current ‘hot’ property market, it’s very tempting to sell an investment property and release the equity, however the short-term financial gain could be putting your long-term retirement plans at risk.

 

If the motivation behind investing in property was to secure your financial future, the short-term cash boost could jeopardise your valuable nest egg. With property prices on an upwards trajectory, it’s never been more important to remember that if you do want to get back into the property investment game later, it will be harder to secure an ideal property at the higher values.

 

With rental values currently soaring in the local Perth market, we’ve taken the time to explain how the benefits of leasing your investment far property outweigh the advantages of selling, giving you the best chance at a profitable retirement plan.

 

 

The Perth Rental Market Forecast for 2022

 

Rental vacancy rates in Perth are at their lowest on record and demand is vastly outstripping supply. A quick read of any property market news source in Perth will report that surging rental values will continue in 2022, providing investors with greater income.

 

The borders have only just recently opened so the full impact is yet to be seen, however it has been reported that there are 22,000 applications either approved or pending approval. With only 2,000 properties available for rent, this influx could cause rent rises of roughly 20% across the year, according to the Sydney Morning Herald.

 



Source: Core Logic (from the AICCWA’s Property Event of the Year 2022 Webinar)

 

 

Renovate To Boost Your Returns

 

All rental market predictions for 2022 are indicating large increases, however if you really want to capitalise and achieve premium rent for your area, there are small upgrades that can be done to your investment property which can make a big difference to rental yields.

 

Whether or not it’s a fresh coat of paint, new flooring, or some basic landscaping, these small adjustments can go a long way to maximise your rental returns. We previously produced a useful blog article entitled Time To Renovate: Top Tips For Your Investment Property in Perth which provides some ideas to get you started.  

 

“Despite the high valuation in the current market, we’ve decided to hold onto our investment property for diversification purposes. We don’t want all our eggs in one basket, a single asset class such as Super, we want the security of an investment property that will add to our retirement fund.”

– Matt (Property Investor, Scarborough)

 

 

Don’t Forget About Capital Gains Tax!

 

When deciding on a course of action, it’s extremely important to bear in mind the Capital Gains Tax that will be due upon selling an investment property.

 

Capital Gains is not taxed separately, it’s added to your income, so you will pay a high rate of tax on the gain. On the other hand, if you wait until after you’ve retired to sell the property, a point where you have low or zero income, the gain will be taxed at the marginal rate.

 

The difference could be significant, potentially tens of thousands of dollars, so we recommend you work this into your calculations when considering whether to sell or hold your investment property. The ATO even has a tool you can use to make the CGT calculation which can be readily accessed here.

 

The difference between the purchase price and the selling price will not be the net amount you receive. Taking into consideration CGT, agent fees, solicitor fees and perhaps even a redemption fee if you’re on a fixed rate mortgage, it may not be worth relinquishing an asset that could set you up for a comfortable retirement.

 

 

Long Term Capital Growth

 

REIWA have tipped the median house price to grow by 10% in 2022 alone, so holding onto your investment property will not only guarantees an additional income whilst the property grows in value, but the mortgage will be paid down, and you will owe less if/when the time comes to sell, which in turn frees up a significant sum of money.

 

Despite the inevitable dips in the property market cycle, the overall growth in property values has inarguably continued, so if your goal is to achieve true financial independence at a later stage of life, we suggest you keep sight of the big picture and avoid chasing the short-term sugar-hit of a sale at the expense of solid and sustainable long-term growth.

 

“Although the property market is ‘hot’ right now we’re not tempted to sell our investment property because we’re thinking more about the long-term outlook. The rental market is so strong, our property is positively geared so there’s minimal costs to hold onto it. It’s a win/win!”

– Nicole (Property Investor, Mount Hawthorn)

 

 


Source: Core Logic (from the AICCWA’s Property Event of the Year 2022 Webinar)

 

 

 

The Benefits Of Playing The Long Game

 

It’s very tempting to cash in while property prices are high, but rather than getting carried away with the frenzied tide, consider your financial future and remind yourself why you purchased an investment property in the first place. Ask yourself if you are putting your comfortable retirement at risk by selling your investment property.

 

However, if you’re planning to leverage the profit to acquire additional investment properties, we would encourage you to do so but with the right team behind you to ensure this is done in the best possible way.

 

 

 

The Value Of Exceptional Property Management

 

If it’s not just the cash appeal that’s motivating you to sell, but also the stress of managing an investment property, it’s worth considering a specialist property management agency to ensure you get the most out of your asset.

 

The award-winning team here at Perth Property Management are the trusted local experts, with our agency being awarded Residential Property Management of The Year by REIWA, whilst being run by our talented Principal Kristy Copping, who is Western Australia’s current Property Manager Of The Year as covered in our article Another Night Of Success At The REIWA Excellence Awards.  

 

If you’re already leasing your property through a property management agency but unhappy with the results, we welcome you to contact us.

 

Or if you are new to using an agency to lease your asset, it may be time to start the conversation ahead of the predicated market growth so you can be sure your property is in the best possible hands.

 

To begin the conversation, please submit an enquiry on our contact page and a member of our team will gladly be in touch.

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