Should Landlords be Selling in this Market?
It’s relatively easy to grasp the challenges that individuals in rental accommodation are currently experiencing. Tenants are struggling with rising rents leaving them with few alternatives.
They must either:
find extra money to cover the increases
rent out a room
take a second job, or
settle for lower quality, smaller spaces.
Interestingly, some tenants are now choosing to transition into property ownership because their mortgage payments could potentially be lower than their current rent.
One might be inclined to perceive landlords’ rent increases as a simple money-making endeavour. However, the truth is much more complex. Despite the surge in rental payments, most landlords are nowhere near covering the added mortgage expenses they are currently encountering after interest rates increased by as much as 4% since May last year.
Consequently, landlords also find themselves grappling with difficult decisions, contemplating whether it’s the right moment to sell the property.
Difficult choices for all parties involved
Navigating these tough decisions can be challenging for both tenants and landlords and, as your finance specialists, we are here to offer guidance and support.
Before rushing into selling your investment properties, please take a moment to consider the following points:
Firstly – DON’T PANIC!
Financial experts predict that interest rate rises are approaching their peak and will likely plateau soon. They expect that within a year we may see interest rates begin to decrease again.
Selling in haste may mean missing out on potential future opportunities in the market.
If you plan to buy back into the market when interest rates decline, be prepared to potentially pay more for your new property. Selling comes with expenses (marketing costs and sales commissions) followed by acquisition costs on your new property (stamp duty, legal, finance, and reletting costs).
Remember Capital Gains Tax (CGT) applies to all investment properties if the selling price is higher Should landlords be selling in this market? than your purchase price and costs. This will have to be paid when you file your tax return at the end of the financial year. So don’t go spending all your proceeds from the sale.
Higher costs may equate to higher negative gearing, additional tax considerations, and impact CGT. You can either refer to the ATO website link on CGT or seek your accountant’s advice. Your accountant can also talk to you about the value of applying for a PAYG withholding variation to help you with your cash flow.
Some lenders have started to change their servicing criteria in favour of good mortgage payers and those with sizable equity, so refinancing to a lower rate might now be easier than it has been in the last 12 months.
If you are a long-term property investor, it may actually pay to sit tight and wait it out. You may save more in the long term than rushing into a decision now.
Potential roadblocks
Tenants’ rights!
When you decide to sell a property that tenants have called home, they might not be pleased with the prospect of having to leave. This discontent could lead to complications during the selling process.
It’s essential to comprehend the legal obligations and notice periods you have with your tenants. If feasible, you might consider having them vacate the property before selling to facilitate styling and potentially enhance your selling price.
However, during the vacant weeks and settlement period, you will not have the benefit of receiving rental income to help pay the mortgage.
Pause and reflect on the initial reason you acquired the property as an investment.
Recall the longer-term commitment you made to secure a dependable and continuous income for your future. It’s crucial to contemplate the potential risks and consequences of selling now as it could have a lasting impact on your financial goals and stability.
Certain properties may not be suitable for long-term investment and ownership. In such cases, it is advisable to seek the guidance of professionals to assist in evaluating the situation. Collaborate with an accountant, vendor advocate, and a trusted real estate agent to make an informed assessment of the property’s viability as an investment.
On a final note, we are here to fully support the decision you ultimately choose. However, it is of utmost importance to be well informed about the costs involved in selling your investment property and carefully compare them with the expenses of holding it.
Leveraging our extensive experience, we can assist you throughout the process, introduce you to other specialists to help you gain a comprehensive understanding of the financial implications of both options and empower you to make a well informed and confident choice.
If you have been contemplating selling your investment property, please call urgently.
Let’s discuss all available options together before finalising your decision.
If you'd like help with assessing your personal and financial situation, as well as comparing the loans in the market to see if you're truly getting the right deal for you, then call Bob Malpass now on 0431 862 136, email [email protected]
Thanks for reading
Bob
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