Property investment owners sometimes get dissatisfied with their investment, especially as an old year gives way to a new one and forward planning is on the agenda over the holiday break. At times like this they are tempted to be impatient, thinking the market is going up too slowly, or the rent isn’t as high as it should be or the current tenants are not as good as the last ones. They decide that selling their investment property is the answer. Is it?
It’s understandable that once the excitement of owning an investment property has settled, some investors get sick of making sacrifices to pay the extra mortgage and start to think there must be a better way to spend their money. After all, many things in life that are started with enthusiasm turn out to be a harder slog when the novelty wears off. But investors who get itchy feet and decide to move on have lost the sense of deferred gratification that led them to invest in property in the first place. They want the instant gratification they think selling will deliver.
In fact, selling too soon often delivers the opposite of what investors are hoping for. Firstly, every real estate sale incurs costs which eat into the profits, so selling too soon often reduces the overall financial gain, especially if they sell before they have held the property long enough to see the market deliver its cyclical capital appreciation.
The most effective way investors can enjoy their increasing wealth is to practise good old-fashioned patience. If they really want to make things happen, they are better off borrowing more money and buying a second property than selling the one they own (provided they bought sensibly in the first place of course!). Astute investors keep buying more properties as their borrowing power increases with the rise in equity that accrues with capital appreciation and rising rents.
Holding investment properties long-term means greater wealth when it is needed (usually on retirement when income from work ceases).
It is true that some short-term self-sacrifice is involved in this strategy. Investors buying their first property are usually stretching themselves just to get a foot on the investment ladder and there is little money left over for luxuries. It is not until their portfolio grows in size that they will be less stretched and more able to increase their lifestyle spending without selling a property to do it.
The best strategy for most investors is to embark on a program of planned property investment at their earliest financial convenience – usually when the equity in their family home reaches a fairly high level and after consulting their accountant.
Then they simply keep adding to their portfolio until they increase their assets to the level that suits their aims and aspirations.