I have a rental property that is ready to be rented or sold...What should I do with it?
Craig, Gold Coast, QLD
Top answer provided by:
Dishna Wijenayake
Hi Craig,
This is a question most property investors ask themselves from time to time. The answer would vary depending on your future goals and personal circumstances. I have highlighted a few key things to consider below;
Tax Implications:
If the investment property is retained, you may be able to claim a tax deduction on loan interest, repairs, property management fees, depreciation etc. This will be beneficial from a tax perspective. Therefore, doing a proper analysis of tax deductions related to this property would be important.
When selling an investment property capital gains tax will apply. If you have owned the property for over 12 months, you will receive a 50% discount on the capital gain. However, if you owned the property for a period of less than 12 months, the 50% discount will not apply. Apart from tax when selling a property, you will also incur other fees such as marketing fees, agent fees etc.
Market Conditions
Another thing to consider is the impact on COVID-19 on the property market. In this environment finding and retaining tenants might be a challenge based on where the rental property is located. It would be worthwhile discussing the current rental market in that area with your property manager.
If selling analysing property sales in the area is important. This will help determine if it is worth selling the property right now or retain it until the property value increase if there is potential.
Your cashflow position
Your current cash flow position is also a key factor. If the property is retained, there will be ongoing property maintenance and other associated costs you would have to meet apart from mortgage repayments. Would you be able to comfortably meet those expenses if the property is retained? If you are unable to meet these ongoing expenses comfortably, then selling the property might be the right option.
If the property is generating a positive cash flow, you will lose this additional income the property is generating if sold.
The impact of retaining vs selling on your ongoing cash flow needs to be considered.
Your long-term objectives
It is always good to revisit the reason for purchasing this property in the first place. Was this property purchased as a long-term investment? What are the income and growth trends for this property? If rental yield and capital growth figures for the property are high, then retaining it might be a good investment decision over the long term.
If you have held this property for some time but haven’t seen much growth, and if the rental yield is low, then this may not be a good investment to retain over the long term. If this is the case moving on from this property and investing in another investment or another property would be beneficial over the long term.
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