Simple guide to selling an investment property

Selling your investment property isn’t an easy task that can be completed in the blink of an eye. After all, you want to make sure you reap all the rewards of the sale when the time comes.

Knowing when to sell your investment property comes down to two things - the property market, and your personal circumstances.

In this article, we’ll guide you through some of the reasons investors decide to sell, capital gains tax implications, and the average time investors take to sell their property .

When do investors consider selling their investment property?

There are a number of reasons that influence investors to sell their property with the most common situations explained below.

An underperforming market or property

Sometimes properties don’t perform well and end up costing a lot more money than they’re worth. In that instance, it may be better to sell the property and move on.

When you retire

Many investors choose to sell their investments so they can free up capital when they’re ready to retire. This allows them to use their funds for things like holidays, travel, new purchases, and the like. Keep in mind that selling an investment property can affect your Age Pension entitlements. 

When you want to invest elsewhere

Some investors may stumble across another investment that’s just too good to miss out on, which may mean selling their current investment property to purchase the new one.

The investment is worth more than when you bought it

If the property is worth more than when you bought it 12 months later, it may be a good time to sell. After all, the end goal of investing is to make money.

You’re no longer receiving a good return on investment

If an investment property is negatively geared and the potential for capital growth is weak, using your equity elsewhere may be a good option.

How long should you wait to sell an investment property?

There’s simply no right or wrong answer to this question as it all comes down to your investment goals.

However, investors generally tend to sell after at least 12 months of ownership to ensure they’re charged as little as possible in capital gains tax.

For some investors, selling the property as soon as possible is wise especially if they’re losing money on the property.

Ultimately, there’s no one rule fits all as every investor has personal circumstances and different expectations for their investment property.

Do you have to pay capital gains tax when selling an investment property?

When the time comes to sell your investment property, you’ll either make a gain or loss.

If your investment sells for more than what you paid (made a profit), you’ve made a capital gain and are therefore liable to pay capital gains tax (CGT) on the sale.

CGT is calculated by the profit made on the sale of the property minus the cost of buying, maintaining, and selling the property. Regardless of a capital gain or loss, you must report this as part of your assessable income on your tax return.

If your investment property records a capital loss, you do not have to pay CGT. Instead, the loss can be offset for future capital gains.

How to avoid capital gains tax on your investment property

In some circumstances, sellers may be partially or fully exempt to paying CGT. Here are the main strategies used to avoid CGT:

• The property was purchased before 1985: CGT does not apply to property’s bought before 20 September 1985.
• The property is held for more than 12 months: If you own the property for over 12 months, you may avoid heftier taxes.
• The investment property becomes a main place of residence: If you decide to move into the property, you may be partially exempt to CGT. However, if you did initially use the property to generate income (i.e. a rental), you may be liable to pay a portion of the capital gains.
• Temporary absence: If you move out of the property and rent it out, the property is still regarded as your principal place of residence for up to six years. Thus, is exempt from CGT.

If you’re thinking about holding onto your investment, but are looking to refinance to a better deal, talk to one of our lending specialists today to help you through the process.

Ready to start saving on your home loan?

Find out in under 2 minutes if you qualify for one of our low rate home loans.

Do I Qualify?