Over the years, we’ve had the privilege of helping a lot of investors build extraordinary wealth with strong investment property portfolios. In good time, most investors will sell.
Here are a few things that we believe are important to consider before selling an investment property.
1. Are you selling for the right reasons? Now, we make a living selling properties for people... So, “Yes, we want to sell this for you”. However…. Is it time to sell? Is the market right? Are you selling because of fear or maybe a bad tenant experience? Are you “over it”? I believe that the big money is made in holding investment real estate. Make sure it’s truly time for you and ask yourself if you are selling for the right reasons. In some cases it makes sense to recapture your sanity and “head space”.... That’s fine too, but don’t be the one who throws away the chunk of your retirement plan because your tenant plugged the sink for the 10th time! Sometimes looking at my mortgage paydown statements have helped “talk me off the ledge”.
2. What’s it going to cost you? Call your lender and understand your payout penalty before getting the ball rolling. Sometimes the “IRD” payout can be more than you might expect. The first time I learned this was when I sold my first Calgary investment property and learned that the payout was close to $20,000! That was one of those hard lessons learned. Don’t let it happen to you! A quick phone call might save you a ton of money and regret.
3. Will your money perform better elsewhere? What’s next? Are you going to reinvest? As an investor, you always want your money working. I have seen some clients sit on big chunks of money for extended periods of time that would have been better parked in real estate or another investment. Be strategic! It’s one thing to have liquid funds to seize opportunity, and it’s another to have that money sitting on the shelf doing nothing.
4. Can you use your mortgage elsewhere? By porting your mortgage, you can usually save your payout penalty and you can also enjoy the accelerated paydown that we see in the later years of your mortgage. If you have a good mortgage, see if it makes sense to use it to your advantage elsewhere.
5. How will this impact you with regards to your taxes? Usually we are selling with a gain (hopefully not at a loss). You’ll want to understand how it will impact you tax wise before you make that decision. If you are locking in a gain on a low income year or locking in a loss to offset a gain, sometimes there can be tax advantages or disadvantages to consider. Seek qualified advice, your accountant should have a part in your decision.
6. Don’t expect to time the market 100%. We’d all like to buy at the bottom and sell at the top, but realize that nobody knows when either of those are. It’s ok, to leave a little bit for the next person!
Should you sell with your tenants included? We’ll save that for a future post. We have a lot to talk about there!
We are always available should you want to explore options and discuss strategies to increase your wealth through real estate. Contact us for a no-obligation strategy session.