Time to ditch that underperforming property?

Time to ditch that underperforming property?

Posted on Thursday, June 28 2012 at 4:31 PM

Should it stay or should it go? This is the question many investors with underperforming properties are pondering as capital growth takes a snooze.

adviser Damian Collins of Perth-based Momentum Wealth says many investors are
keen to free up borrowing power to reinvest in a property with greater
potential for growth.

to stick with or quit a property lemon is a question that seems to be on a lot
of peoples’ lips right now,” Collins says.

“When presented
with this question I generally ask people if they’d buy the same property
today. If the answer is no then it’s a good idea to start
crunching the numbers to assess whether they’re better to quit and reinvest.”

Collins believes some novice investors find
it difficult to admit they hadn’t bought wisely and tend to hold on to poor
performing assets in the hope they eventually come good.

In some cases it’s better to take a loss.
It’s important to first weigh up the cost of doing so – for example, the selling
agent’s fees, stamp duty and the possibility of capital gains tax.

“If getting out of the property only
results in a loss of around six to seven per cent of its value, then it may be
worth considering.”

Buyers agent Liz Wilcox of Hot Property Specialists
believes while it’s not the best time to ditch a property, it’s a good time to
buy – if an investor decides to cut their losses they should buy a in the same
market to minimise the loss and maximise the buying power.

Wilcox says many investors blame the
property but at the end of the day it comes back to thorough property planning
and research.

“Investors really need to talk to an expert
about what they want to achieve. For example, do they want to build a portfolio
in a high growth area over a shorter period? Or are they prepared to wait for
long-term growth?

“Ipswich (in Queensland) is a good example
of this. Yes, Ipswich will see growth over the next 10 years but can the
investor wait that long or is it better to sell and buy in a capital city where
they know growth will happen sooner?”

IProperty Plan’s Mark Armstrong says when
selling an underperforming property investors should consider their tax

“If the investor decides to sell more than
one property, perhaps they should sell through different financial years to
minimise tax… for some, actually holding on to a property with a loss could be
an advantage from a tax perspective.”

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