The PPS Blog
External Factors Influencing the Decision to Hold or Sell Property
By Jeff Banks
In the world of property investment, deciding whether to hold or sell a property can be a crucial and complex decision. Whilst a previous blog presented compelling financial numbers in favour of holding, there are various external influences that can sway an investor’s choice. In this blog, we will explore some of the key outside factors that can significantly impact the decision-making process for property owners.
Market Conditions:
One of the most influential external factors is the current state of the real estate market. In a booming market where property prices are steadily rising, investors may be tempted to sell and capitalise on high returns. Conversely, in a stagnant or declining market, holding onto the property could be more appealing to avoid selling at a loss. Monitoring market trends and consulting with real estate experts can help investors make informed decisions.
Economic Conditions:
The overall economic climate plays a vital role in determining whether to sell or hold. During periods of economic growth and stability, investors may be more inclined to sell and reinvest in potentially more lucrative opportunities. On the other hand, during economic uncertainty or recession, holding onto a property may provide a safe haven for capital preservation. If the decision making process at the start of the investment journey has been completed as we do at Property Portfolio Solutions then these types of questions have already been answered.
Tax Implications:
Taxation can significantly impact the financial outcome of selling or holding a property. Different tax rates, deductions, and exemptions can influence an investor’s net profit. For example, if a property has been held for a more extended period, capital gains tax rates may be reduced. Alternatively, tax laws and policies may change over time, affecting the overall attractiveness of either option.
There are also considerations of income levels and bracket creep (the increase of the rate of tax due to an increased amount of income) that may influence the decision making process. Formulating sales in periods of lesser other income rather than as adjunct to already high income levels could be a factor. For instance this could be particularly factored as taxpayers approach retirement where current exertion income is taxed at a much higher rate than later pension income.
Personal Financial Goals:
Individual investors have varying financial objectives, and these goals can sway their decision to sell or hold. For instance, someone aiming to generate a quick influx of cash may lean toward selling, while another investor with a long-term wealth-building plan may prefer holding to enjoy rental income and potential property appreciation.
Emotional Factors:
Emotions often play a significant role in investment decisions. Sentiments like fear, greed, and attachment can cloud judgement. If an investor has strong sentimental value attached to a property, they might choose to hold onto it despite potentially better financial gains through selling. Emotional biases should be carefully acknowledged and balanced against rational financial considerations.
One of the great advantages of a company like Property Portfolio Solutions is we seek to take the emotion out of the decision making process, basing decisions on the numbers, especially where the outcome is planned and mapped to its fruition.
External Life Events:
Life events such as marriage, divorce, job changes, or retirement can significantly impact an investor’s decision. For instance, a job relocation may necessitate selling a property to free up capital for a new home, while retirement might encourage holding onto properties for a consistent income stream.
The process should be a part of the journey in a well considered property investment plan and seeking to avoid the influences of the “life events” through better structuring or sound forethought has to be at the forefront. But unavoidable events do occur and the ability to circumvent the knee jerk reaction is a key to overall success in our opinion.
Financing and Interest Rates:
The availability of financing and interest rates can influence the decision to hold or sell. Favourable financing terms might encourage investors to leverage existing properties and expand their portfolio. Conversely, higher interest rates may lead investors to prioritise selling to reduce debt exposure.
In a journey where leveraging other people’s money is key, those who “have the money” make the rules. Ensuring asset values and cash flows fall within the auspices of the lenders is often a contributing factor in gaining the funding for the next step in our journey towards financial freedom using property as the vehicle. What will often seem incongruous from an investors point of view may differ significantly from a lenders “spreadsheet” when it comes to the approval forces for your next step in the journey.
Conclusion:
The decision to hold or sell a property is rarely straightforward and involves a careful assessment of multiple external influences. Market conditions, economic factors, tax implications, personal financial goals, emotions, life events, and financing terms all interplay to shape an investor’s choice. Property investors must thoroughly analyse their unique situation and objectives, and if necessary, seek professional advice to make the most appropriate decision for their specific circumstances. Ultimately, striking the right balance between financial wisdom and personal aspirations will pave the way to a successful property investment journey.
Our catch cry is “Your legacy is Our inspiration” and our approach based on what inspires you, will make your legacy seem so much easier to achieve. We are easily contacted by going to our website www.propertyportfoliosolutions.com.au where the start or even the continuation of your property portfolio is made simple.
