How to sell an investment property

Overview of property investment exit strategies and selling investment properties.

The best advice for property investors is usually not to sell at all. Holding onto your investment usually means you build wealth over time as the property grows in value.

But keep in mind that properties don't always grow in value, and you might have other reasons that make it necessary to sell an investment. The advice on that works best for you depends entirely on your goals, financial position and appetite for risk. Also, please note that the information on this page is general advice only.

We spoke to three property experts to get their advice on selling your investment property.

Paul Do

Author, I Buy Houses

Lindy Lear

Property investment advisor, Rocket Property Group

Phillipe Brach

Founder and CEO, Multifocus Properties and Finance

Don't sell if you can avoid it

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.

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."

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.

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."

If you have to sell, get the timing right

Paul Do says, "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.

Avoid selling in a 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.

Strategy 1: Sell the whole property

"This is a safe strategy and is common among the risk averse, especially retirees," says Philippe Brach, founder and CEO of Multifocus Properties and Finance.

"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."

Lindy Lear, property investment advisor for Rocket Property Group, says that investors selling a whole property "can then use the money to reinvest with financial guidance into a fund and live off the returns."

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.

Strategy 2: Sell half the property

You could sell half your property and use the proceeds to pay off some or all of your debt while still holding onto part of your investment.

Lear says, "Theoretically, the half you sell can go towards paying off your debt on the half you keep. This way you still have property assets."

"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."

Strategy 3: Live off the equity instead

Another option instead of selling is to keep the property and live off the equity. This won't work for every borrower, however.

Lear says, "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."

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)

Investment home loans comparison

Rates last updated January 19th, 2019
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Name Product Interest Rate (p.a.) Comp Rate^ (p.a.) Application Fee Ongoing Fees Max LVR Monthly Payment Short Description
3.97%
3.99%
$0
$0 p.a.
80%
Package your owner occupied loan with investment loan and receive a discounted investment rate. 100% offset account included.
3.99%
3.99%
$0
$0 p.a.
80%
Get a discounted, low-fee investor loan from a convenient online lender. 20% deposit required.
3.84%
3.91%
$0
$0 p.a.
80%
Get instant online approval and flexible repayment options with this fixed rate mortgage for investing.
3.74%
3.79%
$499
$0 p.a.
80%
Competitive variable investor mortgage to fund your property portfolio. You can add a 100% offset account for just $10 a month.
3.89%
4.24%
$0
$0 p.a.
80%
Fix your rate and minimise repayments for 2 years with this interest-only investor mortgage.
3.94%
3.94%
$0
$0 p.a.
70%
Investors with a 30% deposit can get this low rate loan to fund their property portfolio. Take advantage of split and redraw facilities.
3.91%
3.92%
$0
$0 p.a.
80%
Investors can go from application to approval in as little as 20 minutes with this innovative online lender.
4.03%
3.92%
$499
$0 p.a.
80%
A competitive 3 year investor rate with principal and interest repayments. Optional offset account with a $10 monthly fee.
3.99%
3.94%
$0
$0 p.a.
80%
Buy an investment property and enjoy the certainty of a 3-year fixed rate with interest-only payments.
4.05%
4.22%
$0
$10 monthly ($120 p.a.)
90%
Lock in your interest rate on your investment property for 2 years. Earn Velocity Frequent Flyer Points.
3.98%
3.98%
$0
$0 p.a.
70%
Investors can get a 100% offset account and a low rate if they have a big deposit. 100% online application process.
3.89%
4.85%
$0
$395 p.a.
90%
Buy your investment property and set your repayments for the first year. Available in QLD, NSW and ACT only.
4.54%
4.59%
$600
$0 p.a.
80%
An investment loan for new Heritage Bank customers. Low fees and interest-only repayments.
4.29%
5.33%
$0
$395 p.a.
90%
Lock in a competitive investment rate and combine your loan with a credit card and transaction account for extra savings. Package fee applies.
4.19%
4.64%
$395
$0 p.a.
80%
Investors can enjoy flexible repayments and an easy application process with this pioneering online lender.
4.29%
4.31%
$0
$0 p.a.
80%
Investors will pay no application or ongoing fees for this interest-only loan.
4.18%
4.18%
$0
$0 p.a.
80%
Investors get a 100% offset account and pay no application or ongoing fees on this loan from an innovative online lender.
3.89%
3.91%
$0
$0 p.a.
80%
Investors can go from application to full approval in as little as 20 minutes with this innovative online lender.
4.29%
4.31%
$0
$0 p.a.
80%
A simple, variable rate investor loan from an online lender that keeps fees to a minimum.
4.90%
4.31%
$0
$0 p.a.
80%
Lock in a fixed rate for 5 years and make interest-only payments with this investment loan.
3.99%
4.62%
$395
$0 p.a.
80%
Investors can enjoy flexible repayments and an easy application process with this pioneering online lender.
3.99%
3.92%
$0
$0 p.a.
80%
A variable interest-only loan for investors. Fast application, low fees, optional offset account. 100% online lender.
3.94%
4.65%
$0
$0 p.a.
90%
Fix your investment repayments for 1 year. You can get this loan with a 10% deposit. Available in QLD, NSW and ACT only.
4.64%
5.39%
$0
$395 p.a.
90%
Pay off your investment knowing your exact repayments for the first 4 years. Get this loan with a 10% deposit.
3.89%
3.91%
$0
$0 p.a.
80%
Lock in your interest rate for 2 years and enjoy flexibility, an optional offset account and a fast online application process.

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Shirley Liu

Shirley Liu is a program manager at finder, formerly the publisher for Banking and Investments. She is passionate about helping people make an informed decision, save money and find the best deal for their needs.

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18 Responses

  1. Default Gravatar
    May 22, 2017

    Hi

    I purchased a property back in 2008 fully owned and the property has been rented since purchase date as l have lived in mums property as a full time carer since date of purchase please can you tell me the percentage amount of CGT that l would be looking at if l decided to sell the property as l am retired and a self retiree at 62 years of age.

    • finder Customer Care
      LouMay 25, 2017Staff

      Hi Carmen,

      Thanks for your question.

      The total CGT you’ll have to pay depends on your income. You may have to get in touch with a professional who is proficient in property taxes to get an estimate.

      You may also read our guide on selling property investments on this page.

      Cheers,
      Anndy

  2. Default Gravatar
    IreneJune 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?

  3. Default Gravatar
    phoebeApril 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?

    • finder Customer Care
      ShirleyApril 22, 2015Staff

      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.

      DISCLAIMER

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

  4. Default Gravatar
    jillApril 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

    • finder Customer Care
      BelindaApril 15, 2015Staff

      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.

      Thanks,
      Belinda

  5. Default Gravatar
    DannyApril 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?

    • finder Customer Care
      MarcApril 9, 2015Staff

      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.

      Cheers,
      Marc.

  6. Default Gravatar
    qkdFebruary 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!

    • finder Customer Care
      ShirleyFebruary 19, 2015Staff

      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.

      Cheers,
      Shirley

  7. Default Gravatar
    evelynOctober 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.

    • finder Customer Care
      ShukriDecember 2, 2014Staff

      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.

      DISCLAIMER

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

  8. Default Gravatar
    SteveFebruary 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?

    • finder Customer Care
      MarcFebruary 20, 2014Staff

      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,
      Marc.

  9. Default Gravatar
    MareeFebruary 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?
    Maree

    • finder Customer Care
      ShirleyFebruary 7, 2014Staff

      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.

      Cheers,
      Shirley

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