First Time Investor Series

Should You Sell Your Investment Property?

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A decision to sell a long term asset such as a property can sometimes be a challenging decision for an investor, more so for a novice investor.

“Every property investor will be confronted with this question at some point in their investment journey. Therefore, knowing when to sell or hold your investment property is essential when building a portfolio,” says Praven Subbramoney, CEO of Private Bank Lending at FNB.

“Due to the long-term nature of the property investment journey, the general rule is that property should at least be held for five to ten years to allow the investor enough time to study market conditions and further assess the viability of their portfolio,” he adds.

Subbramoney unpacks some of the reasons why investors end up selling their properties:

Exit strategy – some investors venture into property having already developed an exit plan, which consists of selling the properties and using the funds for alternative business interests.

Recycling equity – this involves selling a property and using the equity to buy a better performing one. When going for this strategy, it is essential to take into account the costs involved in selling and acquiring a new property and whether the returns will be better in the long-term.

Poor performance – if a property fails to provide good rental yield and capital returns for at least five to 10 years, it may be considered to be performing poorly and eventually sold.

Diversification – property investors may sell some of their properties to unlock capital and diversify their financial risk into another asset class, such as listed equities.

Deteriorating neighbourhood – selling property due to unfavourable changes in the neighbourhood is common for inexperienced investors who did not conduct proper research when acquiring the property.

This could also have been the investor’s former place of residence, which they decided to rent out after moving out.

Life changing events – major life changing events like getting married or having children may lead investors to sell their properties and seek a new direction in life.

Market timing – new investors who do not adequately understand how the property cycle works may be tempted to sell when market conditions seem unfavourable.

“There are many circumstances and underlying factors that may lead you to consider selling or holding your investment property. The decision should ultimately be based on your current circumstances, investment strategy and what you aim to achieve,” concludes Subbramoney.

How do I choose a good investment to start with?

According to Samuel Seeff, chairman of the Seeff property group, there are a few things to look for when choosing a suburb to invest in.

  1. Suburbs with good transport infrastructure

Property values appreciate at different levels, and you often find that the more affordable areas grow much faster in value simply as the demand for homes there is much higher.

You cannot go wrong if you invest in an area that offers a good transport infrastructure such as train, taxi and bus services, and of course good access to main arterials if you need to travel by car.

Think, for example, of the areas around the Gautrain in Johannesburg and Midrand and the MyCiti Bus network in Cape Town. Investing in these areas means an easier commute.

  1. Suburbs with good schools

The second consideration would be schools. While you may not need to be close to a school if you are a first-time buyer, you should preferably buy with a long-term view. Being close to or having relatively easy access to good schools are going to become ever more important over the next few years, says Seeff.

A good education is a major economic advantage. We see, for example, that school belt suburbs such as those of Cape Town’s Southern Suburbs or the Blouberg coast are popular for the schools, as are the Northern Suburbs of Johannesburg.

  1. Suburbs that offer a lifestyle with facilities and amenities

We have seen that the desire for a good lifestyle has become a key driver for property buyers. This has led to the rise in security estates and complexes where people can still enjoy the wonderful outdoor life that is such a defining characteristic for South Africa.

Lifestyle is often an added key selling point when the time comes to sell. For example, a coastal area such as the Cape Town False Bay, Hout Bay and Blouberg areas are popular with buyers. So too, areas such as Waterfall Estates and Steyn City in Johannesburg. The areas around Melrose Arch and Rosebank too are fast becoming sought-after lifestyle suburbs.

  1. Suburbs with better security

Security has become a vital consideration for buyers and suburbs. Good areas to buy in are obviously those with low crime rates and where the local community is involved in aspects such as a Neighbourhood Watch and other initiatives. This will not only contribute to a safer lifestyle, but will add to the demand and value of property in the area.

  1. Suburbs with good capital value growth

You will also want to ensure that you are investing your hard-earned money in an area where your asset will not only hold its value, but will grow in value as time goes by.

Property values appreciate at different levels, and you often find that the more affordable areas grow much faster in value simply as the demand for homes there is much higher.

Sources: FNB, Seeff

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