So you bought an investment property years ago, and are now wondering when is the best time to sell? In this article, we share about what we feel are the 3 best timings to sell off an investment unit.
Stagnation of prices of the unit when you want to sell off an investment property
As investors, we know the importance of making your money work hard for you. For property, we look at both rental yields and capital appreciation potential in a real estate asset. Rental yields are easy to determine, based on the current market rental that is being transacted. For example, in a condominium unit, we can take reference to the recent transacted rental prices in the condominium.
That will determine the next rental price if the current tenant is looking to renew or terminate. From there, we are able to calculate the gross rental yield and also the nett rental yield after taking into account other costs relating to the investment unit such as mortgage rate, condo maintenance fee, property tax and agent service fees to name a few.
Capital appreciation potential is a little more complicated. Like the name suggests, it is potential and it could go higher in due time. But how long the potential can be realized is important here. Let me illustrate. If there are 2 properties that cost S$1 million each, and both have the potential to increase 50% to S$1.5 million. Investors will most likely be indifferent to choose one over another.
However, let’s say after 5 years, Property A appreciates by 25% and Property B appreciates by 30%. On hindsight, Property B is a better investment if the investor only wants to hold on to the unit for 5 years. However, if the investor has another 5 years to go before needing the money from the investment for other needs, then what could be done?
Assuming that both Property A and B’s prices are already stagnant. For one, the investor can keep the same property and hopefully at the end of another 5 years, it will realize its full potential and appreciate to S$1.5 million. He could sell off the unit and put it in another one that have a better growth potential. As an added bonus, with a larger capital after sale, there could be units with better opportunities available.
Restructuring the owners for tax planning purposes
If you have bought an investment unit with a partner or spouse, and currently have capital to invest into the real estate market, it might be helpful to look at how you plan the ownership of the current residential property portfolio.
In a typical scenario, a couple bought a 2 bedroom condominium unit for investment for S$700,000 and it has since appreciated to S$1 million as their second property purchase. Their first property purchase is a built-to-order HDB flat that they currently own, valued at around S$500,000. If together, they were to put the money into another 2-bedroom unit priced at S$1 million, they will have to pay 15% Additional Buyer Stamp Duty(ABSD).
What they can do is to sell off both the HDB flat and the 2 bedroom unit and start afresh. One of them can purchase and own a S$1.5 million 3 bedroom condominium unit. The other spouse can then purchase the 2 bedrooms unit for investment. Between the both of them, they are able to make profit as well.
Each of them owns 1 property, so there is no need to pay the ABSD. The same scenario works if the couple aims to sell the 2 bedroom unit to purchase a landed property priced above S$2 million. The ABSD would have been at 12%. That would be S$240,000 – almost half the price of their HDB flat! Of course, there are other considerations such as loan eligibility and whether they will want to live in a condominium.
Better investment opportunities
Lastly, with limited capital, an investor may identify a better investment unit than the one they currently own. Thus, it might be worthwhile to take the profit that the current investment unit generated and put it in another unit with better growth potential.
We have seen cases where investors cut losses to do the same as well. The money returned together with rentals and savings accumulated over the years. In that way, they might be able to purchase a bigger investment unit or even multiple investment units diversified across Singapore.
For example, take the case that we have mentioned regarding the 2 bedroom unit which initially cost S$700,000 and have appreciated to S$1 million. Assuming they have S$400,000 mortgage loan left, the cash returned would be S$600,000. After an even split of S$300,000 each between the couple, each partner can put a down payment on a close to S$1 million property at a 75% loan from the bank.
Contact Us
If you have questions or if you are thinking about properly showcasing your house for sale, contact Home Quarters by going over to homequarters.com.sg or send us an email at homequarterssg@gmail.com or direct message us on Facebook or Instagram!
If you would like to schedule a virtual viewing, that is also possible – you can read all about what you need to look out for during a property virtual viewing here before COVID-19 end.
Reach out to us any way you like and we love to help you out and answer any questions you have to sell your house so that you can move on to the next big thing in life!
That’s it for this article! Stay safe everybody, and remember, call Home Quarters and start packing!
