July 06, 2021
Knowing when the best time to buy a property is key to succeed as a property investor, but knowing when to sell your property when it is not yielding positive returns is actually more important.
However, many investors often refuse to sell at a loss, thinking that they must at least wait to breakeven. They might even think that if they hold onto the property long enough, things will eventually turn around and yield returns.
But this could lead to an even greater loss and the opportunity cost of holding the property could become too high when they can dispose of the property and place the money somewhere more profitable.
Here’s a few scenarios where you are advised to dispose your loss-making property investment:
1. Negative cash flow that eats into your savings
You will get negative cash flow when the amount of revenue your property generates is not sufficient to cover the monthly instalment and the expenses on the property.
While it is not uncommon to have an investment property that comes with negative cash flow, one should deliberate carefully of selling off the property when the situation occurs, especially when you are unable to save or the expenses have started taking up a dangerous portion of your cash.
It is dangerous to live month to month with such hefty expenses while having little savings and keep in mind that a property transaction often requires months to complete.
This means that if an emergency occurs and you are cash strapped, you will have to wait a few months before you can offload your property and get the cash. And this may lead to a bigger financial issue.
2. The market situation and trends around your property is changing
One of the keys to success in real estate investing is to understand, evaluate and keep abreast of how market situations and trends will affect your investment.
This is especially important when crafting a buying and selling strategy and building a profitable portfolio.
So, you should pay attention to the market conditions of the location where your property is situated.
Some of the key indicators to check out include asking for the prices and rentals, transacted prices, rental yields, the number of foreclosure property and tenant demographic in the area.
All these will have a direct or indirect impact on the current and future returns from your property investment and if they are not performing well, make sure to review your strategy and exit the investment when necessary.
3. There are better opportunities available
You have spotted a better opportunity to grow your wealth but you don’t have sufficient cash to seize it.
So, maybe it is time for you to review your current investment portfolio and identify a couple of underperforming properties that you can consider selling off to raise funds for your next investment.
It is not a wise move to allow yourself to get stuck with an underperforming property while keep watching great opportunities out there passing you by.
You don’t necessarily need to short sell immediately as you can analyse the current situation to try and figure out ways to minimise your losses.
However, it is advised to review your property portfolio to determine whether it is still profitable and not causing you to lose out on any better opportunities.
Taking a loss is always painful but it can be a lesson that will help you gain valuable wisdom and experience in your real estate investing journey.