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Investment properties are a significant portion of many Australians’ portfolios. Not surprisingly, a common question we get asked—especially lately, in light of changing tax and legislation around investment properties—is, “Should we sell our investment property?” 

When it comes to selling investment property, it’s crucial to be well-informed about the potential financial impacts. Let’s delve into some key topics to help guide your decision.

7 considerations before selling your investment property:

1. Legislative Uncertainties and Financial Changes

Recent legislative changes have introduced a cloud of uncertainty for property investors. Notably, the proposal of a 7.5% short-term rental tax and the increase in average debt for an investment property on a variable rate have caught many off guard. This surge in costs, owing mainly to the Reserve Bank’s 4.1% cash rate hike, has led to interest expenses rising by roughly $20,000 annually. 

For many property investors an extra $20,000 in annual costs per rental property means something’s got to give.

2. The Vacancy Tax in Victoria

The state government’s introduction of a new vacancy tax has alarmed many. Originally applicable only to houses in Melbourne’s inner and middle-ring suburbs, this tax will soon encompass the entire state from January 1, 2025. Owners will face an added tax of 1% of the capital improved value of the land unless they can substantiate they lived in the property for at least a month or rented it out for half the year. This is in addition to recent levies introduced as part of the COVID-19 repayment scheme and the new short-term rental tax.

3. Hidden Costs of Selling

While selling might seem like a great way to cash in on your investment, it’s essential to consider the associated costs. These can range from agent fees, advertising costs, legal fees, and potentially large capital gains tax. We can help you crunch the numbers before you make your decision.

4. The Potential Advantages of Keeping the Property

The long-term benefits of holding onto your investment property could potentially outweigh the short-term benefits of selling. Apart from potential capital growth, you can also leverage the equity in your property for other investments. With the right strategies, the annual holding costs after tax might be more bearable than anticipated.

5. Tax Implications and Minimisation Strategies

If you’re leaning towards selling, it’s critical to understand the tax implications. Potential capital gains tax could eat into your profits. However, with informed advice, there may be ways to reduce or even minimise these taxes.

6. Seeking Expert Advice

As experienced investors know, having the right advice can make all the difference. An advisor can offer an impartial assessment, clarify tax positions, advise on holding costs, and explore available loan structures. Armed with this knowledge, you’re better equipped to make informed decisions. In the world of property investment, knowledge truly is power.

7. The Current Surge in Sales: A Note of Caution

While there’s been a noticeable increase in investment property sales recently, not every seller is making informed decisions. Many might be reacting to legislative changes without fully grasping the potential consequences of their actions, both in the short and long term. It’s essential to explore every avenue and understand the broader picture before making such a significant decision. Hasty decisions based on purely emotional or gut feel can cost you dearly.

How to make an informed decision

When it comes to selling investment property, there’s no one-size-fits-all answer. Every investor’s situation is unique, and what might be right for one might not be the best for another. However, by being well-informed and seeking expert advice, you can ensure that your decision aligns with your financial goals.

To guide Victorian  property investors in navigating this complex decision, the Hendrie Group offers an Investment Property Decision service. This is priced at $825 including GST and will outline for you in plain English the following:

• Advise on your likely tax position if you were to sell the property 
• Advise of your annual holding costs after tax if you decided to keep the property 
• Advise you of any options to reduce or minimise tax on the property if sold
• Advise on financial benefits associated with reducing other debt you may not have thought of
• Discuss your wealth creation options if you ultimately decide to sell the property
• Discuss your loan structure to ensure you are structured correctly and paying as little interest as possible

Armed with these insights, you may find yourself pleasantly surprised. At the very least you’ll be able to make a more informed decision. Get in touch with us today to book your Investment Property Decision session today.