Selling investment property

How to Sell an Investment Property

Information verified correct on October 28th, 2016

Overview of property investment exit strategies and selling investment properties.

The best exit strategy is to not exit, but if you have to sell your investments here’s how the experts do it

Want to know more?

‘People never think about what happens at the end,’ says award winning investor and mentor Lindy Lear. ‘Most people only think about the beginning and getting started in property investment.’

‘The size of your asset base determines the level of passive income you’ll get in retirement,’ she continues. ‘Every Time you sell an asset, you’re reducing your asset base.’

Paul Do, author of investor’s handbook ‘I Buy Houses’, says, ‘My first principle is never sell if you can manage not to.’

‘If you need the funds you can replicate selling by borrowing more against the equity in property. But be sure to never extend yourself, only borrow as much as your cash flow can cover the interest comfortably.’

Industry experts advise that the best exit strategy is to not exit at all. The longer you can hold your investment property(ies), or principal place of residence, the greater capital gains as the years progress.

And when you sell, there are a range of expenses that will eat into your profits.

‘When you sell you will incur capital gains tax and it’s going to cost about 10% of the value of the property in transaction costs to sell and buy another property,’ says Paul Do.

4 secrets to successful selling

Property expert Paul Do

Paul Do

An important consideration if you need to sell a property is maximising the diversification of your portfolio. If your investments are predominantly in one state, sell where the concentration of properties are. For instance, if you have three properties in New South Wales and one in Queensland, sell one of the properties in New South Wales. By having a better spread, you’re going to reduce the land tax charged. Land tax varies depending on the state you’re in, but it’s around one to two percent of the value of the land over the threshold in that particular state. If you have a number of properties in a state and you sell one, the value of the land above the threshold reduces and so you incur less land tax. In contrast, if you have only one property in a state, then selling that property might save very little land tax because the value of the land above the threshold might be minimal in the first place.

If you’re looking to sell, do it when your marginal tax rate is low, people who are in retirement or on maternity leave will incur less capital gains tax. For people with big portfolios, only sell one property a year.

The timing of when you sell is also important. One of my principles is to buy when the property market is in the Buying Zone. There are two criteria here: the first is that relative rental yields must be high. This is rents are high vs interest rates. Also vacancy rates must be low. Conversely you want to sell in the Selling Zone, which is the opposite of the aforementioned indicators.

Paul is the author of "I Buy Houses: The Property Investors' Handbook"

But there are times when selling an investment property is necessary.

‘If you’re looking at cashing in on your property investment portfolio and you want to start reaping the profits, you should do this in an orderly manner.’ says Origin Finance’s Philippe Brach.

There are a number of ways people can capitalise on their investments when it comes time to sell. You don’t need to know exactly how you’re going to do it when you first buy an investment property, but it helps.

‘The important thing is to know what your options are,’ he says. ‘There are no hard and fast rules as everybody’s circumstances are unique. Different investment strategies are appropriate for different people.’

Expert exit strategies

Philippe Brach

Founder and CEO, Multifocus Properties and Finance

Sell all, sell half & pay it back early

Sell the lot

The cautious investor and the soon to be retired:

This is a safe strategy and is common among the risk averse, especially retirees.” Philippe says.

‘You will have to accept the fact that you’re going to have to pay capital gains tax (CGT) when you sell your investments. The maximum amount you will be taxed is 22.5% currently.

How much CGT you’ll have to pay depends on your income and the 22.5% figure is the top tier for high income earners. If you have a million dollars in taxable equity in your portfolio, you’re still walking away with $775,000 after paying CGT. Borrowers can then put this in the bank and live off the interest.

Sell half keep half

More efficient than the first strategy

‘This strategy is more efficient than the first and it involves liquidating part of your portfolio to pay off your debt and living off the rental income stream from the remaining assets in the portfolio,’ Philippe says.

‘It has two main advantages. First, you’re going to pay less CGT. Second, you still have exposure to capital growth. Capital growth is not linear. For example, if you were to look over a period of ten years, even though prices may have doubled, the rate of growth is not even from year to year. You may experience five years of flat growth followed by a couple of years of exponential growth followed by another flat period. Overall the long term average is consistent.’

Pay it back early

Recommended but not for everyone

’There are three phases every investor will go through,’ Philippe says. ‘The first is the acquisition phase. Here investors will buy aggressively building their portfolio. At some stage, for various reasons, they will have to stop. The bank may say that they have reached their maximum borrowing capacity or people may just decide that they have enough property. This will lead into the transition phase. Over time investors should see that their debt levels are staying the same but they’re still experiencing capital growth on their investments. The third phase is the withdrawal phase. This is where the investor cashes in on the wealth created through their investments.

When investors enter the transition phase they can help it along by starting to repay the portfolio’s debt instead of waiting for the withdrawal phase. By the time the investor does enter the withdrawal phase, they would have a cash flow positive portfolio. Using this strategy, the investor does not need to sell any assets in the withdrawal phase to repay the accumulated debt - all they need to do is make sure that they have paid the debt down to the point where any future revenue from the portfolio is enough to service any remaining debt not paid during the 2nd and 4rd phases.. The portfolio will still appreciate in value over time.’

‘There is no hard and fast rule around which strategy will work, for instance, a high net worth investor will have no difficulties implementing the third strategy, while an investor on 55K a year will probably opt for the first strategy, everybody is different and their plans on how to capitalise on their investments will be different too. It’s all a question of numbers - after all expenses do you still have enough to live comfortably?’

Lindy Lear

Property investment advisor, Rocket Property Group

Sell all, sell half & live off the equity

Sell everything

The cautious investor and the soon to be retired:

You can then use the money to reinvest with financial guidance into a fund and live off the returns for the rest of your life.’

Say you've built a $5 million property portfolio. $2 million of that is debt and $3 million is equity. If you sell everything, of the $3 million of equity, there are substantial capital gains tax and selling fees deducted from that figure, which will reduce the money available to invest. If the money is invested into another asset class or put into a high interest savings account or term deposit at 4% for instance, there could be a return that is enough to provide for most retirements. The downside is that you are selling off all your growth assets.

Sell half

Selling while still keeping exposure to capital growth:

‘Theoretically, the half you sell can go towards paying off your debt on the half you keep. This way you still have property assets, using the above example, say $1.5 million positively geared, you can live off the rent and still keep the property assets, which over the next 10 years will appreciate as the property passes through another cycle.’ Lear says. ‘Property does go up in value if you buy well in the right areas and are willing to hold it for the long term. A property cycle will last for about seven years. If you had 10% average growth per annum, you can expect your property to double in value after seven years. If there’s 7% growth, you can expect it to double in ten years.’ Lear says. If we look at the historical average growth of property since the 1920s, property has returned over 10%p.a.

Live off the equity

For the risk inclined:

A keep strategy means you’re living off the equity in your property portfolio. Say you have a $5 million portfolio with $3 million in equity and $2 million of debt, the debt is serviced by the tenants in your properties and you live off the equity in your properties for personal use. At 5% return on nest assets that is $150,000pa income. Because you’ve kept the asset base, if it goes through another property cycle, the value of the portfolio will appreciate with the market and you could in another seven to ten years have an asset base of $10M with $2m debt and $8M of equity to live off. At 5% return on net assets that’s $400,000 pa . A nice nest egg to retire on!

‘People need to know what their goals is. Say someone wants to retire in ten years with a passive income from property, they will need to work backwards from their goal to figure out how to achieve this.’

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An investors purchase cycle

Philippe Brach of Multifocus Properties and Finance outlines the phases property investors go through from start to finish.

What is capital growth?


Capital growth is the increase in the value of a property. Historically property has grown in value from year to year and is driven by factors such as population growth; and demand for property type and location.

‘We have been in an environment for the past two to three years where capital growth in the property market has been subdued,’ says Philippe.

‘If you’re looking at the historical average, equities and property have been growing at an average rate of 10.5% since 1926*. Capital growth is not linear. For example, if you were to look over a period of ten years, even though prices may have doubled, the rate of growth is not even from year to year. You may experience five years of flat growth followed by a couple of years of exponential growth followed by another flat period. Overall the long term average is consistent.’ he continues.

*(source AMP Capital – Shane Oliver)

The importance of having an exit strategy when it comes time sell

Jeff Sommers is 70. He believes an exit strategy wasn’t that important when it came to sell his properties.

‘I did not have an exit strategy when I sold some of my properties. They were all negatively geared and I had a cash flow problem because I couldn't find work. I sold at a price below what the properties were valued at a few years ago,’ he says.

After selling, he discovered a strategy that he wished he knew about beforehand. The strategy involves finding someone wishing to buy, but unable to get a loan. ‘They take out an option to purchase at a later date when banks relax a bit. The price is also higher than at present. They move in at a rent high enough to cover interest and insurance but also they pay the rates separately. When the banks relax they can then purchase,’ he says.

Avoid selling your investment property in panic

If you are looking to sell your investment property then you should be looking to sell smart. To avoid selling your property in a panic then you should make sure that you:

  • Think of the future when buying your property: What is the expected growth and yield vs the expected costs. Run the numbers and make sure the investment is going to generate a sufficient return to justify the expense.
  • Create a buffer: Have a buffer to protect against hidden expenses. If the market turns bad and yields drop, you should some money tucked away to cover the loss for a period of time. A buffer gives you time to properly arrange the sale of a property subsequently avoid selling for less than you bought it for.
  • Get insurance: Landlord insurance will help you save money if you are not earning money on the property.

If you would like to learn more about investment strategies, check our investment strategies guide. This guide outlines the common strategies investors use to get into the market and how to make investing in property work for you.

Investment home loans comparison

Rates last updated October 28th, 2016
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Shirley Liu

Shirley is's publisher for banking and investments. She is currently studying a Masters in Commerce (Finance) and is the author of hundreds of articles. She is passionate about helping Aussies make an informed decision, save money and find the best deal for their needs.

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16 Responses to How to Sell an Investment Property

  1. Default Gravatar
    Irene | June 1, 2015

    Hi, I’m thinking of selling 50% of my property to pay off the remaining mortgage.
    What steps should I take?
    What are the pros and cons?

  2. Default Gravatar
    phoebe | April 22, 2015

    I inherited my mums house in 2013. I have since had it rented out. Im thinking of selling. Will i pay capital gains??
    if it was valued at 320k in 2013 and i sell for 400k. How much will i pay in tax Estimatedly?

    • Staff
      Shirley | April 22, 2015

      Hi Phoebe,

      Thanks for your question.

      Should you acquire a deceased estate, it is CGT-free if sold within two years of the death, or continues to be the main residence of the beneficiary.

      Generally your CGT liability is based on what you sold the asset for, minus the cost base plus deductions.

      For a more detailed discussion of your circumstances, please contact The Property Tax Specialists today.


      Readers should not act on the information above without obtaining professional advice relevant to their circumstances. It is intended as information only.

  3. Default Gravatar
    jill | April 14, 2015

    hi I purchased a house in 2009 for $134,000 had to rent it out almost six years ago due to unemployment in the are can you tell me about how much cgt I would have to pay if I sell it now for around $150000,
    thank you

    • Staff
      Belinda | April 15, 2015

      Hi Jill,

      Thanks for your question.

      If you’re selling an investment property, the capital gains tax (CGT) will be based on the sale price of the property less your cost base, or expenses. The cost base is the sum of the initial purchase price, plus any incidentals, ownership and title costs, minus any government grants and depreciable items.

      It is important to note that CGT will vary depending on your income tier which will determine your ability to pay CGT.

      Given that you have used this property for income-producing purposes, and provided that you haven’t nominated any other property as your main residence, under the 6-year rule, the property may be exempt from CGT for a period of up to six years. You may also be exempt from paying capital gains on the income generated from the leasing of the property.

      You may be interested to read more about capital gains tax when selling an investment property.

      I hope you find this useful.


  4. Default Gravatar
    Danny | April 8, 2015

    Hi, I lived my first property one and half year, and then brought a second property and rented the first property out for 6 years, now I moved back my first property for 2 years. How much CGT discount on my first property?

    • Staff
      Marc | April 9, 2015

      Hi Danny,
      thanks for the question.

      This will depend on a range of factors, so it’s recommended you contact the ATO or a qualified property tax specialist for more information.


  5. Default Gravatar
    qkd | February 19, 2015

    Hi, I bought an Investment Apartment(“Off plan”) & signed + exchanged contract at Oct 2013 … Building completion will be late 2015 … Am I entitle 50% CGT discount if I resale it NOW (i.e. more than 12 months from the signed contract date)? Thanks in Advance!

    • Staff
      Shirley | February 19, 2015

      Hi QKD,

      Thanks for your question.

      Typically a 50% CGT discount is available for assets owned for a period of more than 12 months. The acquisition date is the date stated on your contract when you acquired the asset.


  6. Default Gravatar
    evelyn | October 7, 2014

    Hi, Shukiri. I am retiring soon got 6 poverty none of it fully paid.Property bought 16yrs. ago, 12yrs ago and 8yrs ago.I need your advise how I could minimize CGt. I need to sell to retired as I can’t retired with out selling. I am 65yrs. of age now. I plan to start selling after fully retired by June 2015.

    • Staff
      Shukri | December 2, 2014

      Hi Evelyn,

      Capital gains derived on sale of Subdivided land owned for a long period of time will be assessed.

      The main concession, is a 50% discount available when the property has been owned for longer than 12 months.

      Capital Gains is the difference between Selling Price and Cost Base.

      The cost base includes, Purchase price, stamp duty, legal fees on purchase, repairs immediately after purchase (not claimed as deductions against rent), renovations.

      Also in the cost base is the agent commission on sale, marketing fees on sale, legal fees on sale.

      If any capital losses are being carried from prior year losses, these can be offset against the capital gains first.

      Against the 50% portion of capital gains which is assessable, any carry forward taxable loss can be offset.

      Selling your properties in different financial years means gains from only one property will be taxed in any one financial year.

      For a more detailed discussion of your circumstances, please contact The Property Tax Specialists today.


      Readers should not act on the information above without obtaining professional advice relevant to their circumstances. It is intended as information only.

  7. Default Gravatar
    Steve | February 19, 2014

    I am trying to minimise my debt and looking at selling an investment property for i have had for 10 years. I purchased it for $215 000 and looking at selling for $420 000. How do I work out how much CGT is applicable?

    • Staff
      Marc | February 20, 2014

      Hi Steve,
      thanks for the question.

      I’ve emailed you some information from the ATO which will help you work this out.

      I hope this helps,

  8. Default Gravatar
    Maree | February 6, 2014

    I bought a shack 3 years ago for $156,000 and did it up while living in it. I’m now selling it for $180,000. Six months go I got a mortgage of $380,000 to buy a new home ( total price of that one is $560,000). When I sell my shack and move into the new one, which has been rented out, will I have to pay CGT?

    • Staff
      Shirley | February 7, 2014

      Hi Maree,

      Thanks for your comment.

      Is the shack your investment property? If it is, then it’s likely that you’re liable for CGT, but since you’ve owned it for more than year you may be eligible for a 50% CGT discount.


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