Investment Properties

The problem with investment properties is that as they age, there comes a time when their value plateaus and even starts to fall. The building, after all, is a depreciating asset. However, evicting the tenants to bring the property back to a pristine state, and then selling it with vacant possession, is such a daunting task that we tend to close a blind eye to it in the hope that some magic upward spiral in property prices will take the value up. This seldom happens, and we suddenly discover that five years have gone past and the value has remained static. If you are unsure whether you should keep a rental property, find out its value today and ask yourself, “If I had that much money in the bank now would I buy that property?” If the answer is a resounding “no”, sell it for the best price you can get.

Of course, if you decide to do this you will be faced with one of the major drawbacks of owning investment property – capital gains tax. Remember, you can’t sell the back bedroom, which means you are forced to dispose of the entire asset, and that may well trigger capital gains tax. Shares do not have this disadvantage.

So take advice about capital gains tax before you sign any contracts. You don’t get the 50% discount unless you have held the asset for over 12 months, and it is the date of the sales contract, not the date of settlement, that determines which financial year the sale will be assessed in.

This entry was posted in . Bookmark the permalink.