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Should you sell?

Wednesday, April 23rd 2008, 3:13PM 5 Comments

by Philip Macalister

The latest stats from REINZ and QV in the past week have shown that the property market is still falling. The questions many people are asking are how far will it fall and when will it reach the bottom?

From a property investor's perspective the question is possibly slightly different: Should I sell, hold or is it an opportunity to acquire more assets?


Looking through the papers and talking to various real estate agents, it seems there are quite a few investors cashing up at the moment.

I would have thought it was about six months too late to be doing that.

With such a big gap between purchasers and vendors' price expectations, selling only makes sense if there are pressing issues like cash flow (arguably, many refinancing home loans will be experiencing that with rates in or near double digits).

One conversation I had the other day with a long-term property investor has a tip many can use. This person, Val and her husband Peter, are being profiled in the next issue if the NZ Property Investor.

Their story has many interesting angles, but one part of it is that they provided seed money to help all three of their children get into the property market some years ago.

One of her daughters decided a number of years ago to sell a property as the market turned, thinking that it was time to sell up and put the money in the bank for a while.

At that time, just like now, bank rates looked pretty attractive.

However, when the daughter went to re-enter the market again she found it extremely difficult to do.

The reason? When markets hit the bottom, their initial recovery, or bounce can be quite strong. A couple of messages here are; stay in the market if you can, and don't try to pick the dead bottom of the market. No-one can do that and if you get it wrong and are too late, then you will miss an opportunity.
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Comments from our readers

On 24 April 2008 at 7:11 pm Rick said:
While some are jumping ship under finacial pressure, I think that you will find that most investors are purging their under performing properties at the moment to free up capital to acquire better property when the shit hits the fan for the over capitalized investors.

You can guarantee they will be able to offload these properties for a good return quite easy even now (as they have probably held them for decade + so they owe them nothing) - most will sell to the new/inexperienced investor who believes they can grab a good deal right now from other bailing investors (buyer beware comes to mind).

The smart investor is just rearranging their affairs to spring board to the next level when the time is right.
On 30 April 2008 at 12:43 pm Hamish said:
If you can hold on to it, you should not be selling right now. It all comes down to how long you can hold on, I guess. My personal stab in the dark, if you can not hold on to the property for more than 2-5 years, then sell now at any price.
On 21 June 2008 at 7:03 pm Joe said:
It's very simple in my view.

We have just had a six year bull market in property and the market has just turned over. Risks are now to the downside over the next three to five years and if you are holding an overvalued property, you should sell it.

With interest rates at 10%, if you are not earning a pre-tax cash flow return of at least 7% you should sell. So I would suggest you add up the annual rent you're receiving, deduct all costs, and then divide the result by 7%. So for a house generating $300 p/w in rent with annual expenses of $2,500, the house is worth about $180,000.

If the price is significantly higher than this (it probably is) I would sell as fast as possible.
On 4 July 2008 at 10:44 am Helen said:
Interested in people's opinions as we own a modest house in UH and felt that if we didn't sell soon we would be stuck here for 4-5 years which we didn't want. We have managed to sell for QV which we are pleased about. We plan to bank the money, earn interest,rent and purchase a larger - "do-up" in a nicer area when/if the prices fall further, in 6 to 12 months time. We hope this works out for us.
On 4 July 2008 at 10:52 am Helen said:
Oh - I'd also like to add that we purchased the property 3 years ago - and have sold for $90,000 more than what we paid for it. Thanks.
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