Invest for the long-term

Many people are tempted to sell when they can see that they will make a healthy profit. For example, they bought a property for $100,000, and can now sell it for $200,000. The temptation to sell can be great.

The problem is, when you sell, you have to pay a selling commission, typically of 2-3% of the sales price. On a $200,000 sale, that could amount to $6,000. Then you may be up for capital gains tax. This may take another $30,000 out of your profits (or more!). You may also be up for Depreciation Recovered Tax. You may only end up with $65,000 profit. And you no longer own the property - you will never collect another dollar in rent, or have another dollar of appreciation.

If you do not sell, you will never have to pay a selling commission, you will never have to pay capital gains tax, and you will never have to pay depreciation recovered tax. You will still own a property with a rental income stream that is indexed for inflation, and a capital value that is similarly indexed for inflation.

What's more, if you refinance the property, you can easily borrow against the increased equity - that same $100,000 equity may enable you to borrow an extra $90,000 (90% loan to valuation ratio) with none being siphoned off in taxes. Of course you will now have more mortgage interest to pay each month, but assuming that the rental income covers the mortgage outgoings, you now have more money to invest ($90,000 as opposed to say $65,000 if you had sold) and you still own a $200,000 asset that continues to go up in value.

Never sell, except under extenuating circumstances!