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4 Investment Property Exit Strategies

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The purpose of this article is to help investors understand the options available when planning to exit an investment property.

You may think selling your investment property is the smartest exit strategy, however, there are many other options to consider first.

Some strategies might be better suited to your needs than others.  

Lease Options

A method real estate investors could use is selling with lease options.

This method is often used to increase cash flow and sell a property without paying the usual commission to a real estate agent.

A lease option is a real estate transaction and financing technique which combines the sale of the property with a rental transaction.

Property investors need to make sure they seek the right advice regarding agreements with tenants before entering a lease to fully understand the terms of the contract.

Gifting a Property

Investors may consider gifting a property as an exit strategy.

When considering gifting a property, investors must take into account the impact this will have on themselves and the person the property is being given to.

If the property is gifted while the investor is still alive a capital gains tax (CGT) will occur for the investor at the time of the transfer.

However, if the property is gifted after death, the costs basis from the original purchase price would remain intact for the new owner for two years after the date of the bequest.

Capital Gains Tax (CGT)

Investment properties which are sold for profit in Australia require a payment of CGT.

However if the investment property has been held for more than 12 months, the CGT rate will be significantly lower than it would be in the first year of ownership.

CGT is made official when the "CGT event" occurs - this is usually upon the signing of the sale contract by both the selling and buying parties.

It’s important property sellers are in close contact with their accountant and legal team during these stages to ensure they follow contractual and CGT obligations.

To report a capital gain or loss upon sale it is vital investors are able to produce thorough records of their investment process.


Selling the Asset

This exit strategy will have a large impact on the success of an investment and it is recommended to begin planning the selling strategy prior to purchasing.

Buy on a low and sell on a high, is a well-known investment strategy which requires investors to outlay initial capital.

Ideally, an investor should purchase a property which will earn the most capital gains as possible, which requires thorough research before making a purchase decision and when planning to sell.

When considering selling as an exit strategy investors must ensure they have a plan that best suits them.

An outright sale is the most simple, albeit not always the most lucrative.

Many investors plan to sell their property/properties at retirement and use the profits towards enjoying life.

An investor will need to pay CGT if they make a profit at sale.

For other investors, selling the investment property may be the matter of need.

In this case, the investor may not be able to service the costs of the property or may require a lump sum of money.

Investors in this situation are advised to check with their accountant and lending adviser before they sell.

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