Why You Should Never Sell a Property!
There is one big reason why you should never sell a property. If you keep it long enough, it is almost certain to go up in value greatly – making you a big fat profit in the process.
Cashing in on a property may seem smart
But ultimately it is anything but smart
Selling a property can be like throwing away hundreds of thousands of pounds.
I know it, I have done it!
Of course, if as a newbie investor, I knew then what I know now, it would have been a completely different story…
This is what happened to 3 properties I sold, and which I didn’t really have to sell.
Terraced house, Preston, Lancashire. Sold for £45,000 in 2004, worth about £100,000 now.
Terraced house, Preston, Lancashire. Sold for £85,000 in 2017, worth about £135,000 now. I sold these properties to raise capital for non-property reasons. As a result, my net worth is hundreds of thousands of pounds less than it should be.
Given a choice, my experience is that it almost always better to hold rather than to sell a property.
Here, in a nutshell, are the top reasons why selling is invariably the wrong move:
1. Property is a top-performing asset-class
2. You can leverage one property to buy another or raise funds for other purposes
3. Your tenant can pay your mortgage indefinitely
4. Property offers both capital and income growth
5. You don’t have to sell your home when you move.
1. Property is a top-performing asset-class
Property is generally considered one of the best performing asset classes.
On average house values double every 10 years in many parts of the country. In some regions, over some periods, growth is even better than that.
If you have a property, it makes sense to hold it and benefit from spectacular growth – as long as you can.
If you buy a property for £150,000 and it doubles every 10 years, it is worth
£300,000 after 10 years
£600,000 after 20 years
£1,200,000 after 30 years
Why would you want to sell it in 10 years’ time for £300,000 when 30 years down the line it could be worth £1,200,000 or even more?
Of course, past growth may not be repeated in the future. However, anything like past performance will produce spectacular gains.
2. You can refinance a property to buy another or raise funds for other purposes
There is a powerful practical reason why you shouldn’t sell a property…usually you don’t have to do so.
Assuming there is equity in a property, rather than releasing all the equity by selling, you can release part of it by refinancing or remortgaging.
Rather than selling a property for the money you need, you can borrow against it and use the funds raised as you wish.
Using this strategy, you keep your high performing real estate asset and enjoy its long term financial benefits.
The amount you can release by refinancing will of course depend on a number of key variables including the amount of equity, the rental income and your credit status.
If you are unable to secure the amount you need, you can wait until things change.
If you cannot wait, rather than selling, you should seek independent financial advice to explore alternative ways to secure the amount you need.
3. Your tenant can pay your mortgage indefinitely
A fundamental reason why you shouldn’t sell is that you don’t need to bear the financial burden of holding the property – paying the mortgage – that is borne by your tenant.
The rent off your tenant pays the mortgage, freeing you of that financial burden.
If you take out a repayment mortgage, the mortgage will be paid off by the end of the mortgage term. Where you opt for an interest only mortgage, you can remortgage with a new lender at the end of the term.
If your tenant can enable you to hold a property as long as you wish, why would you want to sell it?
Remember that holding a property does not mean you cannot enjoy its growth in value; you can do so by remortgaging, releasing part of the equity to use in any way you wish.
4. Property offers both capital and income growth
Another big reason for not selling a property is the fact that it offers not only the chance of capital growth but also income in the form of rent.
Not all asset classes offer both capital growth and income; gold, for instance, does not.
Further, the capital and income growth of property is reliable, much more so on average than say shares.
A big boost to the attractiveness of property as an investment is the impact of inflation on rents.
Rents grow in line with inflation and the practical outcome is that mortgage payments become effectively cheaper as rents increase over time.
Inflation also shrinks the impact of the principal amount borrowed.
5. You don’t have to sell your home when you move
So you own your own home and the time has come for you to move for any number of reasons.
The only option most people think they have is to sell up, pay off the existing mortgage and use the net proceeds of sale as the deposit for a replacement purchase.
That of course is not the case.
Rather than selling, you could remortgage your home on a buy-to-let mortgage and rent it out.
With the remortgage funds, pay off the existing mortgage and use the balance as the deposit for your new home.
This course of action may result in you not being able to afford as big or as an expensive a home as you would if you had sold up.
You may need to make compromises or “settle for second best”.
The advantages of having two properties
However, you should be aware of the potential advantages of having two properties instead of one.
Example (for illustration purposes only):
You own a property worth £200,000 with £100,000 mortgage on it.
If you sell, you will be left with £100,000 to buy your new home.
You could use the £100,000 as the deposit to purchase somewhere for £200,000 with a 50% LTV mortgage.
Alternatively, you could use the £100,000 to buy a new home and an investment property.
For instance, you could use £75,000 to buy a property worth £300,000 on the basis of 25% LTV borrowing.
You could use the remaining £25,000 to buy a buy to let property for £150,000 on the basis of 16% LTV borrowing.
You will then own two properties worth £450,000. If over the next 10 years, house prices double, you would have £900,000 in property assets compared to £600,000 if you had simply bought another home for £300,000. Losing out on £300,000 paid for by the tenant paying rent.
The benefits of not selling may be even greater for buy to let investors. A homeowner may get the chance to hold onto one or two properties over a lifetime; for a buy to let investor, it may be dozens.
Conclusion
There will be times when you have no viable option but to sell your property – for instance, due to:
Intractable money problems
Ill health
Relationship breakdown.
If however you are able to avoid selling, and especially if you’re a buy-to let investor, not selling could literally add millions of pounds to your net worth over time.
Most people sell a property when it’s not in their interest to do so; you would be wise to avoid being one of them.
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