Many of us think long and hard about how to get started in property investment, but too few plan ahead and are prepared for what happens when or if we sell.
Panic selling often occurs when a property investor doesn’t plan an exit strategy ahead of time and things start to go wrong.
It’s important to set your future goals and work backwards to figure out how to achieve them. Your goal might be to retire with a passive income from property or make a profit from renovating. Consider the worst case scenarios that may occur on the way to achieving these goals and have a plan ready to avoid the need for selling your property at a loss.
Think of an exit strategy as a way to protect and make the best use of your finances. Talk to Union Shopper Mortgage Planners about whether the recent APRA changes to investment lending have affected the suitability of these exit strategies for your circumstances and how to ensure you are prepared when the times.
Some possible exit strategies to consider are as follow:
1. Live off equity and rent
If your goal doesn’t require you to own your properties outright, it may make sense to ride out a rough patch by holding onto your property (i.e., resisting that temptation to sell), making interest-only payments and living off the equity gains and increases in rental yield. If your portfolio increases at a faster rate than your living expenses, it could support your loan repayments and provide a fund for you to live off.
2. Buy and Flip
To make the renovate-and-sell exit strategy work, you need to buy a discounted property and avoid over-leveraging by keeping a cap on your renovation costs. Aim to buy and sell within the shortest possible time frame.
3. Sell and pay capital gains tax
Accept that selling your investments will mean paying capital gains tax. You may need to sell to pay off debt or you might have planned to put your profits in the bank and live off the interest. Another variation is to sell half your portfolio and live off the rental income of the other half.
4. Pay debt early on
A high net worth investor may want to consider repaying the portfolio’s debt ahead of the withdrawal phase when wealth is typically cashed in. Debt will need to be paid down to a point from where any future revenue from the portfolio is enough to service any remaining debt.
Before investing it is important to make sure you have planned for the future. Ensuring you have detailed exit strategies will mean that you are more prepared and able to make better decisions down the track.
Union Shopper Mortgage Planners are here to help you structure your loans and finances to best prepare for the future – contact us on 1300 760 688 to have a chat today.