The past month in our office has been characterised by a number of owners making the decision to exit their investment properties and put them to market. Given the high rents being achieved and the relatively low cost bases of those properties though, it begs the question – why sell?
Whether its planning for a new baby (and budgeting for a single income), looking towards retirement or just looking to pay off the mortgage on their own home, a lot of investors are taking the opportunity to maximise their exit price and sell out now, in a market that constrained supply is keeping hot, with tight timeframes and competitive interest.
While there is plenty of media coverage around investors fleeing restrictive rental legislation or fearing a “mortgage cliff” of increased interest rates, a lot of the time it is still coming down to the simple fact that for those that have owned their property for a while, there is some potentially great money to be made in capital gains from the past few years. Its pretty hard to say no when offered $100,000 (or more) by way of increase – particularly if you are able to claim that sought-after tax free benefit – whether via the 6 year rule or other, specific circumstances.
This wave of investors selling up however, only adds to the stresses of an already squeezed rental market as homes are sold to owner occupiers that typically will pay more than an investor as emotions drive higher prices. Where an investor does come out on top though, there is still added pressure on rents to perform and bring yields back into anticipated ranges. Our investment market is still very cashflow driven, with buyers still seeking strong yields in their purchases. A higher upfront price means rents need to be higher to match – again adding to the impact overall.
Having made the decision to sell, there are a few extra things to keep in mind with tenants in place. Firstly, the question or renewing the lease prior to sale or leaving as is can be a big one – but one I will leave to you for now. Otherwise, good communication with your tenant can make or break a sale – be upfront about the decision to sell and work in where you can as far as inspections and any other expectations (or requests). Open homes are at the tenant’s discretion, as are some photos, so keep this in mind. It won’t always work out, but where you can – consensus is key!