When is the right time to sell a property?

We answer these and many other questions in our video blog episodes.

Here is the transcript of episode 13 to read:

When is the right time to sell a property? The great thing about an investment property is that you can sell it whenever you want, e.g. when you need money. Imagine you have three rented leasehold flats and each flat generates €750 in net cold rent. In your mid-50s, you realise you have €2,250 in rental income and that actually €1,500 is enough for you to retire early. This means two of the three flats are enough and you decide to stop work a bit earlier and sell one of the flats. Then you get in touch with the team at Immobilien-Einkommen.de and we will sell the property back for you that you bought from us a few years earlier. The wonderful thing is that, after at least ten years, properties in Germany can be sold tax-free.

That means if you are not a commercial property dealer, but have acquired the properties privately and are not trading commercially, you can sell them tax-free at any time after the tenth year. And that, of course, in a country where there is such a high tax burden as in Germany, is crucial and important for success.

Let's stick to the example of the three apartments, each bringing in €750 in rent. At 50, you decide you'd rather stop working earlier, €1,500 in rental income is also enough for retirement, and one of the apartments is sold. Then you might pocket €500,000 tax-free for this property and buy a holiday apartment in Spain with it. Then, whenever it gets wet, cold and unpleasant in Germany, you can enjoy the winter in Spain in your new property. You enjoy life there because you were able to sell one of your properties tax-free.

Practice shows: If you buy an investment property now for the next few years and perhaps find your dream property, your dream home, in ten years' time, then you buy that property. You finance it and after ten years you could make an extra repayment. Then the professionals at Immobilien-Einkommen.de will sell your rented property, you take the tax-free sales proceeds and ultimately use them to pay off your owner-occupied property.

This is a very sensible process, because over the next few years the tenant and the tax office will pay off this buy-to-let property for you. So you are sensibly building up a physical asset, using the leverage of paying the absolute minimum yourself while the tenant and the tax office pay the most. You are letting time work for you to build and grow wealth. And then, when you buy the property for your own use or want to make extra repayments, you take the proceeds tax-free from the sale of your rented property and use them to pay off the mortgage on your own property. This makes sense, because with a rented property you have been able to deduct the loan interest from your taxes for years, and the tenant has paid the largest part of the interest for you.

So if you are asking for the right moment to sell an investment property, there are two possibilities: A) You are retiring or want to stop working earlier, you have too many rented properties and you say: I do not need regular income, but want a lump sum. You have some special goal and need the €400,000 or €500,000 that come out of the sale for that. Then that is the right moment OR B) You want to make an unscheduled repayment on your own property. The investment property pays off if you also give it time: time to grow in value, time to benefit from inflation and time for the tenant to pay off as much of the property for you as possible over the years.

Property investment is certainly not a real estate asset, nor an investment where you make a large fortune in a very short space of time. If you want to do that, you can't do it with conservative investments. The buy-to-let property is a safe and conservative investment and is so successful precisely because you take your time and let time work for you. With a buy-to-let property, you need time. 

So, when is the right time to sell? The right time to sell is when you want to take out the money and the proceeds tax-free and enjoy your life, buy yourself something special, or make an early repayment on your property.

Keywords:
Investment property, sale, tax-free, letting, repayment, yield, time, inflation.