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Property development: selling vs holding

Tuesday, 2nd Feb 2016
Businessman Holding Hard Hat

Businessman Holding Hard Hat

It’s a question that’s hotly debated among property investors – should I sell or hold my residential property development? So what is the best strategy to take?

Unfortunately, the answer isn’t always straightforward. The decision whether to sell or hold a development is dependent on a number of factors, such as market conditions, type of development, your financial position as well as your goals.

Your goals for undertaking the development in the first place should play a big part in determining your decision.

Do you want to increase rental returns? Maybe you want to make a cash profit? Or perhaps you want to refinance the development and utilise the equity in the property?

It’s important to be clear on your goals from the outset as this can have a major influence on many aspects of the development.

In most cases in smaller developments, it’s best to hold some or all of the development, provided it’s financially feasible for you to do so and the development is in a good location with long-term growth fundamentals.

This is because when you sell a development, you automatically lose a large portion of the profits through sales agent fees, marketing, income tax (from the cash profit you’ve made) and GST.

Alternatively, investors may be able to develop and sell a portion of the project. For example, in a 6-unit development, the investor may sell 3 units and hold the other 3.

If you do decide to sell, it’s important to hold a good understanding of the market. Selling in a downturn may significantly reduce your profits and it might be better to hold the development until the next upswing in the cycle.

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