Bread & Butter Properties

Bread & Butter Properties
Generate passive rental income

Thursday, June 2, 2011

When's the Right Time to Sell

When is it the right time to sell your property? That's a difficult question to answer. If you read Rolf deRoos' 10 Rules on Property Investing, then the answer is Never (or seldom). You just keep accumulating those little green houses, rent them out for income, and never sell. Over time, this would prove to be a good decision, as the property become "free and clear" courtesy of your tenants, and not to mention, the price having appreciated along the way.

Robert G. Allen (author of Multiple Streams of Income, No Money Down) says "don't wait to buy property, buy property and wait" - referring to the power of compounding over time; property prices tend to appreciate, so the longer you hold on to it, the higher its value. Again, don't sell.

But then, as my Uncle Sam says "there's nothing so good, that you've got to own 100% of" - explaining, that sometimes, we don't have to hold on to all our properties like they were family heirlooms. There comes a time when it is right to sell a few of the property and realise some profit. Take some money of the table, so to speak. But, what is the appropriate return on your investment? is it 10%, 20%, 50% or 100%?  That is a difficult question that only you can answer. It all depends on your risk return profile, and what the market can bear, when you sell.

When is a good time to sell some of your 'bread & butter property'? I have written down 3 times that I can think of, and hopefully that will help you decide.

1) At the bottom of the interest rate cycle; all else being equal, as interest starts to climb, the value of property should come down. Of course, knowing when the bottom is crucial. It would normally take one to two years for the interest rate hike to peak - in which case, it's probably a good time to buy some of the properties, as their prices come off.  In our scenario, BNM has raised rates by another 25bps which to me signals that we have passed the bottom of the cycle - time to take some profit?

2) the second time to sell is when the area we have been buying has matured, and perhaps started to deteriorate; there could be some demographic changes in the area attracting a different set of renters, crime could be increasing or the general areas start becoming unkept. These are all signs that you should get out, so the decision to sell is not difficult - just getting the right price that you want.

3) lastly, when you no longer enjoy the "game" of buy, and being a landlord. You are sick of phone calls from unreasonable tenants after midnight complaining that their tap's broken, or the constant late rent payments.  This could also be a signal for you to get out. Always good to listen ti what your heart is telling you.No point to stay in the game if your heart is no longer there.

Robert Irwin says - The two best days in your life as a real estate investor are the day you buy your first property, and the day you sell it!

So, you have enjoyed one of those times by buying, perhaps this is the time to enjoy the other?

next article: what you need to do to prepare the property for sale

copyright Chris Gan@2011,