(B.S Alert) “You should never sell properties”

The world’s most successful investor, Warren Buffett says his preferred time for holding an investment is ‘forever’.

And, many property investors feel the same way, because they feel that if they sell a property they could miss out on the potential future gains.

Fair enough, but here’s another perspective.

Property investing is about how much return you get from the money you invested- your return on capital.
So the question to ask is:

Is this the very best return on capital I can get, with the highest degree of safety right now?

If the answer is no, then you may need to reallocate capital.

Let’s say, as a young man, ‘Frank’ invested in a in a property without an intelligent property selection process.

He just bought because he knew the suburb and he thought it was a reasonable price.

Then Frank got educated, and he learnt how to pin point properties that will far out perform the average.

In that instance, it might make sense to sell his property to free up capital.

Then he could use new found research skills to buy a high performance property.

After all, a well-chosen property can outperform an ‘average’ one by many $100,000’s over a 10 year period.

Why keep your money in a ‘slug’ property?

(Yes, I know Frank could have just accessed the equity in the property, but if the properties going nowhere, then you can only get so much $$$ out).

Another example, of when you might want to sell is if you’re bleeding cashflow, and it’s causing you and your family financial stress.

I spoke to a guy that was losing $3,000 a month from his portfolio.

His family income was about $90,000 a year…so a fair chunk of his dough was going out the door.

He was in a world of pain.

My suggestion was to sell some property while the market was hot.

Stop bleeding cash.
Then restart over buying some higher yielding properties, so he wasn’t in such a financially vulnerable position.

After all, if interest rates go up or he had a vacancy etc. then he could be toast.

That’s not my idea of a great business. It’s a financial stress pressure cooker!
You see sometimes, people collecting properties like stamps. They just like the idea of having a whole bunch of properties.

They lose sight of the fact that each property has to justify its place in your portfolio.

As Todd Polke says – it’s not about the property it’s about the result it gives you in your life.
Would you prefer 3 capital city properties owned debt free giving you a healthy passive income each month…. or 10 ‘slug properties’ with stacks of debt.

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Hope that gave you some food for thought.

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