Do you own a dud investment property?

Contrary to what many people believe, there are plenty of underperforming investment properties out there and plenty of blue-chip investment properties in the Australian market.

Read on to find out if you have an underperforming investment property and what you can do about it.

What is a dud property investment?

Put simply, an underperforming property investment has one or more of the following characteristics:

• It’s generating below-average (or even average) rental income returns
  If you’re serious about building your wealth, there’s no excuse for holding onto properties that aren’t giving you higher-than-average rental income, especially with the current record low vacancy rates in most Australian property markets.Plenty of blue-chip investment property opportunities in the Australian market will provide you with above-average rental yields.
• It’s generating below-average (or even average) capital growth
  Once again, if you’re a serious investor, you should always seek to maximise your capital growth. If your investment property hasn’t delivered above-average capital growth for you over the past few years when we’ve had a property price boom in Australia, then it may be worth speaking to a professional to review your options.It could be that your property is in the wrong location, that you paid too much for it in the first place, or that you’ve overcapitalised (in other words, spent too much money renovating it).

  Whatever the reason, you need to consider your options from here moving forward.

  Your best option might be to sell the dud investment property and reinvest in a blue-chip property instead. Blue-chip properties will enable you to maximise your rental income and capital growth potential.

• It’s costing you a lot of money
  You might have bought an ageing property that requires extensive ongoing repairs and maintenance, or it may have above-average rates or body corporate costs.No matter the reason, if the costs of holding your property are significantly draining your investment returns, then once again, you need to consider better blue-chip opportunities.

Key considerations if you have a POOR PERFORMING investment property

• Opportunity cost
  If you own an underperforming investment property, you must consider more than your out-of-pocket expenses. You also need to consider the cost of your opportunity.

  Even a poorly performing property is a significant investment amount. You need to consider the rental income and capital growth you could generate if you had a blue-chip investment property instead. That’s the opportunity cost of holding onto your underperforming investment.

  Poorly performing property investments can have significant out-of-pocket and opportunity costs.

• Sell or hold?
  If you have an underperforming investment property, you must decide whether to sell or hold it.

  Holding it will reduce your borrowing capacity for other blue-chip properties, especially if you are still paying off a significant loan on the existing investment property. It will also maintain your existing holding and opportunity costs.

  “Should I sell my investment property?” is a question you must consider seriously. If you decide to sell, you will have more funds available for another property purchase; however, you will also be subject to selling costs like capital gains tax, real estate agent and conveyancing fees, and stamp duty on your new property.

  The benefits of selling your dud investment property (including the opportunity to generate above-average rental income and capital growth with a blue-chip property purchase) must outweigh the costs of selling for it to be a worthwhile decision.

• The benefits of diversifying
  If you decide it’s in your best interest to hold the property (for example, if your exit costs of selling it are too high), then you could still use the equity you have in it as leverage to diversify your investment portfolio.

  In other words, it means buying a different type of investment property or one in a different geographic market. Doing that will allow you to spread your risk and increase your investment return, especially if you buy blue-chip properties.

• Why did you buy the property in the first place?
  Finally, it’s also important to consider why you bought the investment property in the first place so you can learn from your mistakes. For example, was it an emotional purchase? Was it made without doing the research? Did you follow the herd? Was it made without expert advice?

  The best way to avoid buying underperforming investment properties is to get expert advice on identifying blue-chip opportunities instead.

The bottom line

Any investor looking to maximise his or her wealth should seriously consider selling an investment property that is not performing well in the current Australian market.

ARE YOU WONDERING IF YOUR CURRENT INVESTMENT IS HOLDING YOU BACK?

I’d love to help you assess your options and optimise your property portfolio. Together, we can discuss how to turn underperforming investments into wealth-generating opportunities.

Reach out to me at hello@safore.co or call 1300 697 767 for an obligation-free consultation.

Let’s pave the way to a smarter property future!