Every single day we all have to make many decisions, some of them small and some of them big. Success coach Anthony Robbins said that even not making a decision is also a decision. In the case of property investing, we will have to decide for each property in our portfolio whether we want to keep it or when to sell it. The short answer to that is: It depends.
What does it depend upon? There are a number of factors that you need to take into consideration:
- The objective of having bought this property
- Your strategy
- Your personal situation and potential changes to it
- The numbers
- Other opportunities
For each of your properties, you need to think of what was your objective of having acquired it in the first place was. Was it for cash flow or capital appreciation reasons? What was the strategy you used? These two give you a good indication when it is time to sell this particular property.
If your strategy was a short-time gain, with, for example, a fix and flip, you will likely sell it after the renovation is complete. In contrast, if your strategy was buy and hold, and you have a good passive income from that property, and it acts like a cash cow, why would you let it go? When do you sell your golden goose? Probably never . . . I still own the very first property that I ever bought decades ago and the tenants have paid it almost one and half times over by now.
When To Sell?
Nothing is more constant than change, as the popular saying goes. What could prompt you to sell your investment is that it has achieved its objective or it cannot achieve its objective any more, or that your strategy or personal situation has changed. With a newborn baby in the family, you may be now focused more on cash flow, or if you are reaching retirement age, you want to reduce risk. Assess the changes and adjust your strategy accordingly, which then might highlight that some of the properties in your portfolio have to go. Perhaps something unexpected might have happened that influences either your own personal situation or the property market as a whole, which then prompts you to change your original plan and offload a property.
Always remember that the main principle guidance is numbers. As an investor you strive to achieve maximum returns, be it from capital appreciation or rental yield. If the numbers are still correct, that is great and you might want to hold on for that particular property longer. But if the numbers are not working anymore, and you have better opportunities elsewhere, it might be time to switch.
Another important factor that determines when you should sell a particular property is timing. After your property has enjoyed a significant increase in value and prices are starting to stagnate
because it is the end of the property cycle in that area, you don’t mind selling off this property, whereas if prices are currently low, but are expected to increase soon, you might want to hold on to it a little bit longer.
Can passive income and selling for profit coexist? They surely can and should. You ought to strike a balance between those two. What the right balance is for you, you should have already determined when you set your goals and defined your strategies.
It can be relatively easy to compare properties in your portfolio, or opportunities for new additions within the same category, against each other. One way is to look at how different buy-to-let properties are yielding. It is more difficult to compare properties in different categories across various strategies to each other.
How can I compare a cash flow buy-to-let on a commercial property against a fix and flip? Well, you can’t directly compare them. Once again it comes down to your objectives and strategies – which of them you want to buy more of, hold or dispose of. Within each category though, it is quite clear that you need to review the worst performing ones and take appropriate action. The bottom performer does not necessarily mean that it was a bad investment – it was simply not as good as the others. Let’s say you have four buy-to-let apartments that give you yields of 8%, 9%, 10% and 10% and your target is 8% . . . then all is well and good. But if you had one in the list with 3% you should consider changing it.
Earn While You Keep Learning
Educating yourself is one of the best investments you will ever make. The beauty of educating yourself in property investing is that while you gain new knowledge, you are actually earning money, instead of spending it as soon as you have acquired your first or next property.
Keep looking for new opportunities and always keep yourself abreast about the market, changes, and property prices. No book or training course can ever give you all the knowledge you possibly need, so it is important that you keep learning and learning and learning. I do, too. If you amass only one (or more) property per year – where will you be ten years from now?
The Property Apprentice Master, Jochen Siepmann, wants to share the wealth of his knowledge easily and effortlessly with you for FREE. Start your journey now to greater wealth through passive real estate income and capital appreciation with one, or all, of these FREE offers: