Selling an investment property in Australia

by Maureen Moffat | Jun 10, 2022

Are you a property owner thinking of selling your investment property? Before you do, have you done your capital asset homework? For example, is it the right time to sell? How will the sale affect your financial plans? To help you decide whether or not to list your investment property, check out our helpful guide. Not only will our insightful tips give you peace of mind, but they can also help you save on taxes and costs. After all, who wants to give the tax department more money than they need to?

Is it the right time to sell my investment property?

Some Australian property experts say the longer you hold onto a property, the more it will be worth when you sell. For example, in 2000, Perth’s average median house price was $248,583. Today that same house is worth $575,000. While that is an impressive capital gain, is it time to cash in? The answer depends on your circumstances.

Maintaining an investment property is costly for some real estate investors, but the rental return offsets those costs, so it’s worth holding on to. Meanwhile, other real estate investors may feel it is time to realise the capital gain and invest in two cheaper properties with future capital growth potential.

While there are many considerations, the most common reasons for selling an investment property are:

Retirement strategy

The strategy is to free up the capital and use the money to live on. But keep in mind the proceeds from the sale may affect your Age Pension entitlement.

Realise capital gain

Selling to cash in and reinvest the money elsewhere will likely offer a better future gain.

Capital gains tax (CGT) exemption

Exiting the property before the six-year mark and after living in it for 12 months, avoids CGT. The ATO call this the absence or 6-year rule.

The most common reasons for not selling include:

Less than five years of ownership
Disposing of property within five years means you rarely recoup the conveyancing, duty and loan costs or realise any capital gain
Positively geared
The property is returning good rental yields and is positively geared, so there is little financial reason to sell.
High growth area
Housing trends are showing a strong upward tick where the property is located

“Too often, clients get so excited about cashing in on their capital gain that they forget to calculate taxes relating to the sale,” says Kerry Cable, Strand Legal and Conveyancing’s Business Manager.

Investment property tax obligations

Any type of property that is not your primary residence is likely to be subject to capital gains tax when you sell it.

What is capital gains tax?

The Australian Tax Office (ATO) states that ‘capital gains tax’ is the tax you pay on profits from selling assets, such as property. CGT is calculated by deducting the cost of buying, maintaining and selling property from the profit made on the sale. Note that any sales profits go toward your assessable income for that financial year.

Is paying capital gains tax avoidable?

The answer is yes. There are circumstances in which you could partially or fully exempt from paying CGT.

These circumstances include, but are not limited to:

Properties bought before 20 September 1985
The date is before the introduction of CGT.
Property that becomes your primary residence
You’ll be partially exempt from CGT if you later decide to live in a property you bought for investment.
Temporary absence
If you move out of your property and rent it out to tenants, the property is still your primary residence for up to six years.
Affordable housing
Property bought and used for affordable rental housing can reduce CGT by 10 per cent.
Capital loss
Most times, you can use capital losses to offset capital gains made on investment property sales

Selling your investment property

When ready to sell your investment property, the essential steps to take are:

Get a property evaluation

Find out what the market value of your investment property is worth. Talk to a real estate agent you trust in addition to conducting real estate market research yourself. Other options include free online property evaluations and free property guide apps released by reputable major banks. For example, the Commonwealth Bank’s Property Guide app.

Speak to your accountant

Your accountant is the perfect person to determine whether now is the right time to sell, based on your financial goals and situation. They can also help you maximise your tax return by using any capital losses to offset capital gains.

Appoint the best real estate agent

When choosing a real estate agent, make sure their property appraisal aligns with your pricing research. While going with the agent promising the highest sale price might be tempting, this could mean your property languishes on the market for months without selling.

Choose auction or private sale

Most real estate agents ask you to choose a sale method, either auction or private sale. A private sale has an asking price, and an offer can be made, negotiated, and accepted. Conversely, an auction involves marketing the property without a price and selling it on a specific day.

Select your property settlement agent or conveyancer

A settlement agent is a professional who handles all the legal aspects of transferring a property from one owner to another. They will also liaise with Revenue WA for payment of duty. Your lender and agent will have a list of recommended settlement agents, but you’re free to choose your own. Ask about their fees and get at least two quotes to compare.

How to choose a property settlement agent or conveyancer

Kerry Cable explains that many factors come into consideration when selecting a settlement agent.

“But the most important is choosing someone experienced in handling the sales of investment properties and giving professional advice.”

According to Kerry, choosing experience over price ensures that the administration, legal and financial processes go smoothly and settlement happens on time.

Factors to consider when choosing a conveyancer include:

Level of experience

One of the most important things to consider when choosing a conveyancer is their experience level.

“Don’t be afraid to ask your conveyancer how many years of experience they have, what companies they’ve worked for and details about their professional qualifications,” advises Kerry.

Reputation is key

Perhaps the most important factor to consider when choosing a settlement agent is their reputation. Be sure to choose someone who is respected by their peers and has a good track record of completing settlements quickly and efficiently.

Word of mouth

Ask for recommendations from friends or family who have recently sold investment properties, or you can search online for reviews of settlement agents or conveyancers in your area.

Once you have chosen a settlement agent, they will work with you to complete the settlement of your property.

Experience matters

“At Strand Legal and Conveyancing, we handle all of the paperwork and transfer of ownership so that the sale of your property goes smoothly and according to plan,” says Kerry.

Selling an investment property can be a complex process, but you can make it as smooth and stress-free as possible by following our helpful guide. Our tips will help you save on taxes and costs to get the most out of your investment.

If you have any questions about property settlement or conveyancing law, don’t hesitate to contact us at Strand Legal and Conveyancing. We’re here to help.

Need more help?

Visit our Settlement Agents Perth WA page or learn more about our Perth lawyers and legal services.
Alternatively, Email Kerry Cable or call (08) 9381 0500 today.

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