When is the best time to sell an investment property?

Many people may think, "If I am going to sell the investment condominium I have purchased, I want to sell it for as high a price as possible.
Buying at a low price and selling at a high price is the basis of business, and this concept is no different in real estate investment.
When is the "ideal" time to sell such an investment condominium?

When the sale price exceeds the purchase price of the condominium

When the sale price exceeds the purchase price of the condominium, it is an ideal time to invest.
For example, if a property purchased for 10 million yen can be sold for 15 million yen, a profit of 5 million yen is realized.
However, this is only ideal timing, and in reality, the longer the property is held, the lower the sale price tends to be.

When the price of land is rising

One of the ideal times to sell is when roadside land prices are rising, as this increases the likelihood of making a profit from the sale.
Japan's national average roadside land price has been on an upward trend since 2016, but in 2021 the national average was down 0.5% from the previous year.
The roadside land price is one of the official prices of land and refers to the inheritance tax assessed value set by the National Tax Agency, which is announced once a year, taking into account the actual condition of the land.
In order to determine when to sell a condominium, it is necessary to carefully examine these official indicators such as roadside land prices and the actual prices in the area where the condominium you own is located.

When interest rates are low

Since the monetary easing implemented in April 2013 as part of Abenomics, interest rates have remained extremely low for both mortgages and investment loans.
With the current recession due to Covid, it is safe to assume that interest rates will not be raised for some time to come.
Low interest rates are an excellent time to purchase real estate.
Many people are taking advantage of this opportunity to purchase condominiums, so if you are selling, act while interest rates are low.

When the sum of accumulated rental income and the sale price exceeds the purchase price

It is reasonable as an investment to sell a condominium when the sum of accumulated rental income and the sale price exceeds the purchase price.
For example, if a condominium purchased for 10 million yen earns 500,000 yen annually and is sold for 8.5 million yen after 5 years, the profit will be 8.5 million yen + 2.5 million yen (500,000 yen x 5 years) = 11 million yen.
However, it is important to note that taxes after the sale must also be taken into account.

Sell when the property conditions are ripe

Naturally, selling a purchased condominium at a time when its value has increased can result in a large gain on the sale.
However, the timing for selling is not limited to when property prices rise.
One good time to sell is when there are large expenses for major repairs or when the property value of the property is trending downward.

Before major repairs

A reserve for repairs is set aside for large-scale repairs, but in many cases, this is the trigger for an increase in the repair reserve.
In addition, it is not uncommon for a one-time charge to be levied because the repair reserve fund alone is not enough to cover the rising cost of construction.
Furthermore, if other owners cannot agree on large-scale repairs themselves, necessary repairs cannot be carried out, and the property may end up with low asset value.
Raising the repair reserve fund and carrying out large-scale repairs not only increases the burden, but also reduces the property value if large-scale repairs cannot be carried out, so it can be said that the time to sell the property is before large-scale repairs.

Before the property turns 20 years old

The property value of an investment condominium varies greatly depending on the age of the building.
If the building is over 20 years old, the loan term is 15-25 years, even if the appraised value is high.
The shorter the loan term, the larger the monthly loan repayment, so a certain level of yield is required to sell the property.
Furthermore, if the property is more than 35 years old, the appraisal value will be severe, the loan will be of a shorter term and at a higher interest rate, and it will be difficult to even obtain a loan from some financial institutions.
Since investment condominiums are generally purchased with a loan, it will be difficult to sell unless the property has a very high yield.
Therefore, it is less risky to sell before the property is more than 20 years old.

Take the occupancy rate into consideration

Real estate investment is an investment that depends on tenants.
When selling an investment condominium, timing should be determined by the occupancy status of the property.
Whether or not there are current tenants and whether or not it is moving season will also affect whether it is the right time to sell.

When it is tenanted

When a condominium is sold, it is treated as an "owner-change property" when there is an occupant.
Owner-change properties are in high demand from investors because there is no need to look for tenants and rental income can be earned from the time of purchase.
Of course, the property cannot be sold as a residential property, but since many buyers of studio apartments for singles are investors, it is more advantageous to sell the property when there are tenants.

When the property is vacant

If the property is vacant, the sales activity will be broader, as the property can be sold not only as an investment, but also to those who are considering purchasing the property as their own home.
In addition, the younger the property is, the higher the sale price may be, so it may be more profitable to sell when the property is still new, rather than lowering the rent to attract tenants when the property becomes vacant.

When the vacancy rate of condominiums becomes high

There are many reasons for high vacancy rates in condominiums, including the age and deterioration of the condominium itself, depopulation in the area, and changes in transportation systems.
Remodeling and renovation to prevent vacancy are expensive expenditures, and even so, there is no guarantee that tenants will always be found.
Therefore, if the vacancy period is getting longer, it might be better to cut your losses and sell.

Right before moving season

Spring and fall are moving seasons.
Demand for real estate is high during these times, and it is said to be an easy time to sell, even at somewhat aggressive pricing.
The average time to sell a condominium is about 3-6 months.
By starting preparations shortly before this moving season, you can easily catch the eye of many prospective buyers.
If the number of inquiries increases as a result of being seen, the psychology of "If I don't hurry, it will be bought" will easily work on those who are considering purchase, and there is a high possibility of being able to sell without discount negotiations, etc.

In conclusion

Although real estate tends to focus on tax savings and the yield of rental income, a loss at the time of sale does not indicate that the investment was successful.
When selling an investment condominium, it is necessary to judge the timing based on various factors such as market conditions and demand.
In addition, selling takes costs and time, so take that into consideration as well as the time it takes to sell.