You may be tempted to sell your investment property when its value soars, but be careful. Selling at peak market-value can be a losing game. It can leave you vulnerable to steep losses in profit and diminished purchasing power.
You don’t need to sell a property to take advantage of its strong market value. Holding your property when values rise can be a much safer strategy to build wealth.
This is because a boost in market-value increases your equity in the property, which in turn boosts your leverage potential. Armed with more equity than you had when you purchased the property, you can approach the bank to refinance, allowing you to buy an additional well-priced property on your existing mortgage.
This leverage potential is squandered if you sell, because capital gains tax, agent commissions, legal fees and so on eat into your profit. When you sell, you’re handing over much of your profit instead of making it work for you.
Borrowing against increased equity to finance other assets is especially beneficial if there’s cheap money on offer. Rising market prices coupled with current low interest rates can make the wealth accumulation game much easier for prudent players.
Until next week,