Focus on your exit strategy
March 3, 2014 / Written by Rich Harvey
Investors in Australian property can make the mistake of concentrating too hard on how to enter the market that they forget how important it is to have an exit plan.
It makes sense to focus on exactly how and why you plan to purchase Australian property investment. Whether it's Brisbane investment properties, luxury real estate in Sydney or anything in between, researching the market, determining which property type suits your needs and creating a strategy is essential.
Just remember that having an exit strategy is part of determining what your ultimate goals are.
If your primary goal is to make money, that's all well and good. But something as important and potentially costly as real estate investment demands specifics, not just a vague idea of profit.
With that in mind, it's wise to sit down and take stock of your property goals, as well as which exit strategy makes the most sense for you.
No exit plan necessary?
One exit strategy may be not having one at all.
Many investors will say that you should never sell your property investment, and if your goal is to purchase positive cashflow properties you can rent out to tenants, this advice makes sense.
The extra money brought in by renting out homes to tenants can be the ideal way to supplement retirement income, and by investing in the services of a professional property manager, you can ensure that any number of properties you own will be taken care of with as little input as you wish.
Buying property is also generally seen as one of the safer investments. Once you pay off any money borrowed to make the purchase, you will be the owner of a physical asset that will likely only increase in value.
At the same time, life changes and so can your priorities. Perhaps you've decided to move, or maybe you're looking for a large sum quickly that can't be produced from rental income. Or maybe you bought Australian property with the express intent of making capital gains all along.
Regardless of the reason, if you plan on selling, there are a number of strategies to choose from.
Holding on or letting go?
While selling a property can provide you a with a much larger sum of money all at once than renting it out, you must also contend with capital gains tax.
It's this tax you need to consider when you're deciding between selling all your Australian investment property or holding on to some assets while selling others.
Selling half your properties and retaining ownership of the other half can be an effective strategy. The money you receive from selling can be used to pay off any outstanding debts, while the properties you continue to own can be used for supplemental income through rent.
Also, since you'll be receiving less money in a lump sum, you'll be paying less in capital gains tax.
Plenty of other factors will need to be considered when you're strategising the best exit plan. For instance, do you still owe money on any home loans? How has capital growth been performing on your properties in the last few years, and where is it poised to go in the future? Do you own rental properties in a popular area or is it becoming harder to find tenants?
The point is to make an exit strategy part of your overall planning, not to one day find yourself selling in a panic.
Avoid panicked sales
Property investment is a long-term game. That means you should never make rushed decisions based on what is likely a temporary up or down.
Create an investment plan and stick to it. While it's important to remain apprised of the market, it's just as vital to think about the future and give yourself enough of a financial buffer to deal with sudden changes or expenses.
Nothing can eat into investment profits quite like selling real estate without giving it the forethought it deserves.