Time and again, says Jason Lee, national head of Rawson Commercial, he is asked whether or not an investor should sell a property or hold onto it in perpetuity.
“There appears to be a perception in some people that this is an either or matter,” said Lee. “The more amateur the investor, the more he is inclined to stick to one formula. The correct answer to the “sell or not sell” question is, however, that both strategies can be right when the circumstances justify them.”
In his view, said Lee, a property portfolio is not successful unless it gives a return, at the very least equal to that of a good money fund, with the capital appreciation over time being the icing on the cake. This, he said, can probably only be achieved if a continual upgrading policy is applied, with low performing stock being sold to assist in the financing of better buys.
Every property, said Lee, should be analysed in relation to what was paid for it, how it will fare in today’s market and how much hard cash the investor needs at that time for decreasing his gearing on other bonds or to purchase a new property that offers better returns and/or prospects of capital growth.
“I do not advocate, as some do, that investors should hold onto all their properties in perpetuity. We have to keep in mind what one of my earliest property mentors repeated daily, “I have never made a loss by taking a profit”. This down to earth mantra should make us reluctant to ever close the door on selling. Some years ago I sold a waterfront coastal property to which I was very attached. The substantial profit helped me buy into a further three opportunities which have all proved profitable.”
Lee referred those wanting a complete rundown on this subject to his book, “Fast forward your retirement through property” (Zebra Press 2009). In this he advocates a two pronged investment strategy with the investor categorising his properties as long or short term propositions. Lee quoted the philosophy of a certain investor, “Buy two properties a year, one for the long term and one for a quick sale. Use the profits from the quick sale to reduce the gearing on the long term investment and improve your cash flow, or to make another better buy."
The buy/sell philosophy, said Lee, is endorsed by several of South Africa’s top listed property companies which are continually selling stock to realise profits and reinvest or improve their cash flow on existing property holdings.
