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Should you offload your investment property

Should you offload your investment property

  • 23 Sep 2020
  • Jon Byrne

The assumption that the COVID-19 pandemic has turned the world upside down and the housing market is no different is not at all contested.

As Australia heads into a recession and individual financial positions are threatened, many investors are left questioning whether the time is right now to leave the market, or if they should weather the storm for a better long-term return.

It is a challenging moment, with analysts giving both the leasing and sales markets contrasting demand predictions.

But, as with most big life choices, all options have both pros and cons, and can be weighed up against individual circumstances.

Reasons for selling a land investment

Cash flow dump

"The decision to sell or keep depends primarily on the form of property, its current effect on your household budget, and the two- to three-year forecast for your particular area," says Simon Pressley, head of research at buyer's Propertyology agency.

"From a financial viewpoint, COVID-19 is a cash flow squeeze, plus a few systemic adjustments have been produced which I feel are here to remain.

"Those who own pricey assets worth more than, say, $800,000 would be prudent to consider divesting as well."

Investing in lower-priced assets at different locations is, according to Mr Pressley, a financially safer choice, with benefits including increased demand through improved pricing, risk reduction through diversification and better cash flows

"(But) if you own a property and the difference between annual net revenue and spending is more than, say, $5000, the balances lead towards a sale decision."

Reduced choice to live in high density

Well before COVID-19 took hold, some property experts voiced concern about investments in high density apartments, but in a post-coronavirus environment, the lifestyle appeal of the apartment could decline.

"For a number of reasons, apartments have been massively underperforming over the last decade as opposed to a meat-and-potato suburban home," says Pressley.

"During the three-month lock-down, most Australians took a critical analysis of lifestyle preferences and we conclude there will be sustained decreased demand for apartments in the inner city."

Why you should have an investment property

Improved economic forecast

Although the coronavirus pandemic's economic fallout has seen both buyer and seller confidence decline, causing a resulting downturn in property listings, outlook in major parts of Australia has strengthened from earlier dire forecasts.

Although COVID-19's full impact on rent prices and vacancy rates has yet to be fully assessed, REIQ Chief Executive Antonia Mercorella says new data published for the first quarter of 2020 show a healthy rent market.

"Backed by reasonably stable growth in house markets in most countries, rent levels have steadily risen," she says.

"This is also mirrored in vacancy rates, which are typically exceptionally high."

Investment properties in large metropolitan cities with varied markets, premium lifestyles, and sub-$450,000 median house values, are worth holding on to, according to Mr Pressley.

Properties are a long-term commitment

"Owning an investment property isn't as easy as 'buying on a low and selling on a high' to make the most money," Ms Mercorella says.

"Understanding the cycles of real estate is important to any investment in land, as it can provide you with insight on its financial success over time and capital growth."

"Nevertheless, no matter how well you quantify property investment efficiency, housing market volatility, as well as local and foreign markets, financial and tax regulatory changes, socio-economic and demographic shifts, and natural disasters, all of these factors will impact your investment and influence your decision to sell."

But in the long run behaving rashly in the face of unpredictable or drastic situations is not necessarily risky, particularly if you have the cash flow to ride out the storm.

"When you sell a property too early, you can skip a high in the property market cycle and struggle to optimise your return on capital gains," says Ms Mercorella.

"In the end, the investment in property is a long-term policy."

Note this article is not financial or legal advise. Please check with your financial and legal specialist counsel before making any decisions of your own.

For further information about real estate in this area, contact No Bull Real Estate, your most reliable and friendly real estate agents in Newcastle and Lake Macquarie. Buying, selling, leasing for residential, commercial, industrial property, contact your local expert to buy, sell or lease today on 49552624 or https://www.nobullrealestate.com.au

 

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