Taking property profits makes sense

iStock 000008206998Small-857An increasing number of Milestone clients have seen the value of their rental property increase by over 20% in the past two years. For those with rentals in Auckland, the gain could be over 30% depending on property location.

Unfortunately, rental incomes have not kept pace. The tax efficiency of owning rental properties is changing and costs are increasing. We are likely to see rising mortgage rates over the next few years and this makes it difficult for landlords who are highly leveraged.

An increasing number of our retired clients are selling rental properties and investing the proceeds into diversified portfolios which over time provide more liquidity and potentially higher returns.

Many clients purchased rental properties years ago and have made a good capital gain but are now facing higher insurance, rates and maintenance costs. The income return they get may be attractive compared to the price originally paid. However, when the return after all expenses (including factoring in your management time) is divided by the current inflated market value, then the return in many instances is pathetically low.

By selling now when prices are high, they have more money to reinvest into a diversified portfolio plus some left over for enjoying a holiday, giving to the kids or making a new purchase.