Selling up: knowing when it's time to sell your buy-to-let property

Many property investors do not intend to hold onto their portfolio forever. Indeed, a large proportion of investors buy property with the specific intention of selling it on at a higher price, while others simply see it as a temporary means of generating extra income.

Sometimes, though, it can be difficult to know when to let go of a buy-to-let property. Short-term financial concerns can often cause investors to panic and sell property for less than it is worth. Conversely, some investors sit on cheap property for far too long, hoping that it will appreciate significantly enough for them to make a decent profit. As an investor, it is important to understand when to let go of a property, and when to hold on.

When would you want to sell your property?

There is a wide range of circumstances in which you might sell a buy-to-let or investment property. Sometimes this will be through necessity, and sometimes because it is a prudent business decision.

Of course, if you cannot pay the buy-to-let mortgage on a property you may have little choice but to sell it – particularly if it is the sole property in your portfolio. But there are other instances in which it might be time to sell up:

Extended void periods

If you are finding it very difficult to let your property, it is likely to have become a drain on your finances. Void periods can be very costly; even if you are insured against them, this cover will eventually expire. If you cannot find tenants, it may simply be because there is no demand in the area for that type of property, or because it is of a lower standard than other similar properties.

Subsidy from other properties

If you have a few properties in your portfolio, you may find that some of those properties are actually being subsidised by others. If you are making a loss on one or two properties but a profit on others, your bottom line will be suffering. You may therefore wish to consider divesting yourself of the loss-making properties. You should also ensure that you keep accounts on a property-by-property basis, as well across your whole portfolio, in order to identify potential weak links.

Change in circumstances

If you own investment property near to your home but subsequently have to move, you may find it difficult to keep on top of the work required to manage it. In these circumstances you will need to decide whether to hire a property manager or lettings agent to do the work for you (which can be costly) or to sell up.

Capital appreciation

Many investors buy property with the intention of selling it on when prices rise. But even if you had previously intended to hold onto your property, a sudden spike in asking prices may cause you to reconsider. In these cases you must ensure that you take into consideration the tax implications of selling up, particularly as Capital Gains Tax rates are set to rise.

When should you hang on?

There are, of course, circumstances in which it is more financially beneficial to hang onto a property than to sell up. Investors are often panicked into selling, for example if they have endured a void period or if the rent they can command has dropped.

The spectre of negative equity scared many investors into selling property last year and, if there is a further correction in house prices, this phenomenon may return. It is worth noting that negative equity in itself is not a reason to sell – in fact, if anything it is a reason to hang onto your property. For all the scaremongering about negative equity, it is only actually dangerous for individuals that absolutely have to sell property; in these cases you will be forced to make up the difference between the sale price and the outstanding mortgage. If you are in negative equity but can still pay the mortgage repayments, it is often more sensible to hold onto the property until prices have recovered.

What if you want to sell your entire portfolio?

At some point you may well decide that you wish to divest yourself of your entire portfolio. There are a few important points to remember here. First of all, this could be a very large task, and one for which you may require the services of a specialist agent. There are estate agencies that specialise in these types of transactions; they may even be able to put you in touch with buyers that may be interested in your whole portfolio. This would save you having to negotiate several different sales.

You should also keep the tax implications of any such sale in the forefront of your mind. Remember that you will likely incur a Capital Gains Tax charge – and at the current CGT level of 18 percent (or 28 percent for higher rate taxpayers) this can make a big dent in your takings.

Selling any part of your property portfolio can be a long and laborious task. Make sure that you do not rush into a sale, and that you fully consider the tax implications. Where possible, you should consider resisting the urge to sell in order to soothe short-term financial problems. Property can be a valuable long-term asset, and it is often better to hold on and continue to derive income from it, than to flog it cheap for a quick gain.