The challenges facing individuals in rental accommodation have never been more apparent. With rising rents becoming a growing concern, tenants are left with a limited set of options. They must either find extra money to cover the rent increases, rent out a room, take on a second job, or settle for lower quality and smaller living spaces. Surprisingly, some tenants are now considering transitioning into property ownership, as their mortgage payments could potentially be lower than their current rent.
While it might be tempting to perceive landlords’ rent increases as a straightforward money-making endeavor, the reality is far more intricate. Despite the surge in rental payments, most landlords are still struggling to cover the additional mortgage expenses incurred due to interest rate hikes, which have soared by as much as 4% since May last year.
As a result, landlords are also grappling with tough decisions, pondering whether it’s the right moment to sell their properties. Navigating these decisions can be challenging for both tenants and landlords, and, as your finance specialists, we’re here to offer guidance and support.
Before hastily deciding to sell your investment properties, please consider the following points:
1. Don’t Panic! Financial experts predict that interest rate hikes are nearing their peak and are expected to plateau soon. Within a year, interest rates may start to decrease again. Selling in haste might mean missing out on potential future opportunities in the market.
2. Prepare for Additional Costs Selling a property comes with expenses such as marketing costs and sales commissions, followed by acquisition costs on your new property, including stamp duty, legal fees, finance charges, and reletting costs. Additionally, keep in mind that Capital Gains Tax (CGT) applies to all investment properties if the selling price is higher than your purchase price and costs.
3. Consider Potential Tax Implications Higher costs can lead to higher negative gearing and additional tax considerations, affecting CGT. Consult with your accountant or refer to the ATO website for guidance on CGT and consider applying for a PAYG withholding variation to manage cash flow.
4. Explore Refinancing Opportunities Some lenders have adjusted their servicing criteria, favoring good mortgage payers and those with substantial equity. Refinancing to a lower rate might be more feasible now than it was in the past year.
5. Long-Term Investment Perspective If you are a long-term property investor, it may be more advantageous to sit tight and wait for the market to stabilize. Rushing into a decision now might not be in your best interest in the long run.
However, there are potential roadblocks to consider, such as tenants’ rights. When you decide to sell a property that tenants have called home, they may not be pleased about having to leave. It’s crucial to understand the legal obligations and notice periods you have with your tenants. If possible, consider having them vacate the property before selling to enhance your selling price, though this might mean sacrificing rental income during the vacant weeks and settlement period.
Pause and reflect on your initial reason for acquiring the property as an investment. Remember the long-term commitment you made to secure dependable and continuous income for your future. Selling now could have lasting implications for your financial goals and stability, so it’s essential to carefully evaluate the potential risks and consequences.
Some properties may not be suitable for long-term investment and ownership. In such cases, seek the guidance of professionals, including an accountant, vendor advocate, and a trusted real estate agent, to make an informed assessment of the property’s viability as an investment.
In conclusion, it’s crucial to be well-informed about the costs involved in selling your investment property and compare them with the expenses of holding it. With our extensive experience, we can assist you throughout the process and introduce you to other specialists who can help you gain a comprehensive understanding of the financial implications of both options. Ultimately, we’re here to empower you to make a well-informed and confident choice.
If you’ve been contemplating selling your investment property, we urge you to reach out to us for a discussion. Let’s explore all available options together before finalizing your decision.