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Blog
Should I sell my investment property now?
House selling tips
25 November 2020

Should I sell my investment property now?

Rosie Hamilton
Writer & Researcher

Table of contents

  1. 1. What is an investment property?
  2. 2. Should I sell my investment property now?
  3. 3. Frequently asked questions about selling an investment property
  4. 4. Tips for selling an investment property now

People choose to get into property investing for a number of reasons: to create a nest egg for the future, for a source of passive income, or for the direct profit gained from doing up and selling a run down house.

In many cases property investment is a long term strategy. But, in times of uncertainty - and rapidly rising house prices - some investors choose to take a more reactive approach.

In this article we look at what conditions in 2020 might encourage investors to sell up, and the important things to consider before taking the leap.

What is an investment property?

An investment property is a house or flat that you’ve bought with the intention of making money. For example, both buy-to-let and house flipping would count as forms of investment in property.

Should I sell my investment property now?

2020 has been an exciting time in the property market. House prices have hit record highs, interest rates have hit record lows, and a temporary Stamp Duty Tax holiday has encouraged large numbers of buyers to come to the market.

These might seem like pretty tempting conditions for selling an investment property. But, before you decide whether to sell up, there are a few things to consider first:

What’s more important: passive income, or a one-off profit?

This will depend upon the original reason you purchased the property. Consider what’s more important to you, passive rental income, or the profit of selling the property at a higher price than you bought it for.

If you’re looking for the best possible profit, now might be a good time to sell - particularly if you’ve owned the property for some time. House prices are soaring, and there are a huge number of buyers active in the market across the UK.

On the other hand, if passive rental income is more important, you might benefit from holding onto the property. Demand for rental property can go up and down. For example, demand for rentals is much lower in central London than usual. However, in most cases taking a long term approach will mean you can ‘ride out’ any losses with gains further down the line. Holding onto the property will ensure the potential for rental income in the future.

Local developments and trends

It’s incredibly hard to predict exactly what will happen with house prices, particularly in times of such uncertainty. But, with some research, we can make some educated predictions.

For example, if you know there is going to be a large scale housing development completed near your property in the near future, it’s likely that this will decrease the value of your home, because you’ll have to compete directly against a large number of new build properties. You may wish to sell before these properties are completed - or to commit to a long term strategy.

On the other hand, a large infrastructure development such as a new underground line, or tram service, can hugely increase the value of your property. You may wish to wait until the development is finished before selling, so that you get the best possible price for your house.

What have you spent on the property?

It’s common to have to undertake work on an investment property. This could be because you purchased the house as a renovation project, or simply to repair natural wear and tear from tenants.

Take the time to work out how much you’ve spent on home improvements, on top of how much it originally cost to purchase the property. This will give you a more accurate sense of how much you need to sell the property for in order to make a reasonable profit.

How much will it cost to sell?

Selling a property can be expensive. For starters there are estate agents and legal fees to take into account. On top of this, if you choose to sell the property untenanted, you may be forgoing rental income for a number of months. And, if you make a profit over the threshold, you’ll likely have to pay Capital Gains Tax.

If you’re thinking about selling, consider whether you’re likely to make enough money to cover these costs (as well as the amount you’ve put into renovations).

Personal circumstances

Perhaps the most important thing to take into consideration are your personal circumstances.

There’s no point holding onto a property in the hope that it will eventually become profitable if doing so will leave you without adequate financial security. In this case, you may wish to sell in order to release some equity that could later be invested when your position is more stable.

On the other hand, if you do have some financial flexibility, you might decide a long term approach is the better option for you.

If you’re unsure about the best option for your particular circumstances, make sure to talk to an independent financial advisor. They will be able to provide advice tailored to your specific goals and needs.

Frequently asked questions about selling an investment property

Can I sell my investment property with tenants?

Yes, you can sell a house or flat either with or without tenants.

If you decide to sell your property with tenants ‘in situ’, you will boost your appeal to other investors, who will be enticed by the prospect of being able to earn money from day 1. You will also get paid rent right up until the date of completion.

The main downside to selling with tenants is that you narrow your pool of potential buyers to just those looking for a buy-to-let property.

On the other hand, if you decide to sell the house or flat without tenants you will appeal to a much larger number of buyers. However, you will lose out on the rental income for the period of time the property is on the market.

Read more about selling a property with tenants in situ, here.

Will I have to pay Capital Gains Tax (CGT)?

Capital gains tax is due on any ‘gain’ (profit) over £12,300 (2020/21) made on the sale of assets like: investment properties or stocks and shares. If you’ve passed this threshold in a single tax year, you will be eligible to pay CGT.

If you’re a basic rate tax payer, this will amount to 18% on any gain made over the £12,000 threshold. If you’re a higher rate tax payer, the tax increases to 28%.

Married or civil partnership couples are allowed to combine their Capital Gains Tax allowance, meaning they could be eligible for a ‘gain’ of £24,600 tax free in the 2020-2021 tax year.

For more information about capital gains tax, check out our blog. Head there now.

Tips for selling an investment property now

Get the right team in place

The most effective way to get the best outcome from a property sale is to make sure you have the best team on side. This is even more vital if you don’t live locally to your property.

A good estate agent will know a neighbourhood - and the buyers looking there - inside out. Not only will this help you get your property in front of the right types of buyers, it will give your sale an edge. An estate agent that knows the area well, is more likely to provide an accurate valuation, and be able to sell the benefits to those interested. Look out for agents with significant experience in the area, and a clear track record of success.

Similarly the right solicitor can make a huge difference. Solicitors are the driving force of the sales process; they need to be communicative, and efficient. Look out for solicitors who are known for their speed, and accuracy. If you’re selling a leasehold, or a mixed-use property, consider a conveyancer with specific experience in these areas.

Unsure where to start? This estate agent comparison tool looks at the performance of agents all over the UK, and creates a list of the best agents in your property’s neighbourhood. Try it for free now.

Stage the property for the intended tenants

Unlike a standard residential property sale, those looking round the property aren’t the people looking to live there. Instead, they will be considering the appeal of the property for renting out.

Play up to this. Furnish your property in a style suited to the ideal tenant. For example, if your property usually attracts students, consider including a desk and a large fridge.

Potential landlords should be able to easily imagine their target tenant as they walk around. This will help assure them that the property will make them money.

For more tips on preparing a property for sale, check out our handy guide, here.

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