The market is hot. Should I sell?

Posted by Luke Graham

Upon the death of his father on 9 August 2016, a 25-year-old Englishman by the name of Hugh Richard Louis Grosvenor became the 7th Duke of Westminster. Along with this title came the inheritance of an estimated £9 billion (around $16.7 billion AUD). The duke’s wealth comes from real estate, an endeavour which his family have pursued for centuries. To illustrate his power and influence, consider that in 2013 he was named godfather of the future King George (eldest child of William and Kate).

There’s no doubt young Hugh fits the very definition of privilege, but it’s his family history that serves as a valuable lesson to those contemplating the sale of their property investments. Although the Grosvenors didn’t expand their holdings to Australia until the 20th century, their foray into real estate began when their distant ancestor helped William I conquer England in 1066.

The Grosvenors have held their country estate, Eaton Hall, since the 1600s

Most of us don’t quite have a millennium to accumulate wealth. It’s more likely you’re a matter of years or decades from retirement, but the same rule applies:

THINK TWICE BEFORE SELLING YOUR PROPERTY

There have been many medieval dukes, marquesses and earls with substantial land wealth over the past millennium, but over that time, an overindulgent heir or two squandered their family wealth into oblivion. We see the same thing play out in property investors’ portfolios. The motivations differ, but the outcomes are often similar. Here are some familiar ones:

1) Selling in a buyer’s market
A few weeks ago, Gavin wrote about the property cycle. When we add human emotion to the mix, we unfortunately find that many property investors sell when the market is working against them. It could be that there is a high level of construction in the area, bad media headlines, unfavourable government policy, or some kind of black swan event (such as the pandemic). Often these sellers are influenced by advisors with alterior motives.

2) Selling due to a change of circumstances
Just like a lot can happen to a wealthy estate over 1,000 years, a lot can also happen over an individual’s lifetime. Health emergencies, relocations, employment troubles and relationship breakdowns are just some examples of the tragedies of life which can interrupt a long-term property investment strategy. Preparation is one way of mitigating this.

3) Cashing out when things are looking good
During boom times like these, many property investors make the decision to cash out. This is certainly a better strategy than selling in a buyer’s market, but that doesn’t mean selling is the right thing to do. One property cycle follows another, meaning holding your property for longer can result in more substantial benefits to your future lifestyle. Take, for instance, the early baby boomers who wished they’d kept a hold of their $50,000 Sydney homes now worth upwards of a million (instead of cashing out at $70,000). Another thing to take into account here is the rental income you miss by selling, as well as the costs of selling and reentering the market (such as capital gains tax, agent’s commissions, stamp duty, legal fees, etc.)

Posted by Luke Graham, on 23rd Aug 2021