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Property investings are long-term gain. Harry Triguboff isn't worth $18 billion because he sold all his properties. He held them, but not every single one of them forever. You might not have your sights set on being the next Aussie billionaire, but understanding the details on when it's time to hold or when it could be the time to sell can be a life-changing skill that completely orders your portfolio. In this episode, I'm going to use some real-life examples to unpack this point, as well as breaking down the costs involved in buying and selling, so you know the full picture.
My name is Junge Ma, Lead Research Analyst at InvestorKit. Let's get into it. When we talk about time to sell, the first thing many people may think is timing the market. Theoretically, you can time the market if you have plenty of data. Let's take Ballarat as an example.
Theoretically, 2016 to 2017 would be a great time for you to enter the Ballarat market, because at that time, prices haven't picked up yet, but at the same time, days on market, which is a very important indicator for market pressure, has been trending downward for almost two years. So if you enter that market any time between late 2016 to late 2017, you'll be able to enjoy the whole growth cycle of Ballarat from 2018 on all the way to 2022. And then in 2022, things have changed. Price growth slowed down, and days on market, that very important indicator, started to go up. That's an apparent sign of a market pressure relief.
So if you have captured that, that could be a good time to sell and exit Ballarat, and then redeploy your money to a rising market. So if you timed it well, say you bought in February 2017 in Ballarat and sold in February 2022 in Ballarat, holding it for five years, your total capital gain would be maximized at 70%. However, what I just described was just a very ideal scenario. In reality, not everyone can time the market so well. And when you choose this buy, sell, buy model, there's always costs associated with your selling.
Some costs include your agent fees, your marketing fees, your solicitor fees, and most importantly, your capital gain tax. All these together could be worth 5% to 7%, or possibly even more. So what's a better model? Instead of buy, sell, buy, you can simply buy a property, hold on to it, and when it has gained extra value, refinance it and use that equity gained to buy your next property. This way, you can not only enjoy the growth of your first property, but also you don't need to worry about the sales costs.
And moving forward, you can enjoy the compound growth of the two properties or even more properties rather than just one property. To make it better to understand, we have built two simplified models. First model is a buy, sell, buy strategy, and the second model is a buy and buy strategy. Let's see how different they could be. In the first model, we assume that you have purchased a median-priced house in Ballarat back in February 2017, and you sold it in February 2022 at the peak of Ballarat's growth cycle.
Your total capital gain would be $254,000, but you have to pay capital gains tax and also all the fees associated with sales. So after deducting those, your net gain would be around $195,000. And let's say you're using the total of $195,000 as the deposit for your next property. And you're timing the market to buy, so you see Townsville as a good opportunity. So you purchased a property in Townsville for $379,000, which is the median price at the time for Townsville.
So fast forward to now, early 2025, your Townsville property is valued at $537,500. Your total debt would be just above $200,000. You're enjoying a $331,000 debt-free asset, and your annual cash flow would be $3,500. And in the next model, we follow the buy and buy strategy. Still, you purchased your Ballarat property at median price in February 2017.
And in February 2022, instead of selling it, you simply refinanced it and extracted the equity you have gained. Using that for the deposit of your purchase number two in Townsville. Fast forward to early 2025, you will be holding two properties valued at $1,062,000. Your debt-free asset will be much higher at $398,000, and your annual cash flow would be negative $14,000. So by following the second model, the buy and buy strategy, you will be having $67,000 more in debt-free equity compared to following the first model.
Now the question is, when will be a good time to sell? The answer is, you can sell only when an asset is holding your portfolio growth back. For example, you're holding an apartment in an oversupplied area. There's no long-term growth prospect. It could be a good time to sell.
Or if you're holding a property at a very high price with an extremely low yield, and your cash flow is preventing you from saving more and buying more. In that case, it could be a good time to sell. But otherwise, if you're holding a freestanding house in a very healthy market, even if the market is going down or not growing really fast at the moment, as long as the yield is good and there's another growth cycle to come on the horizon, it is still worth holding. So in summary, the answer to the question when it's time to sell really comes back to if the asset you're thinking of selling has done its job in growing your portfolio, or it's possibly holding your portfolio growth back. The idea of buying at the bottom and always selling at the top can work out sometimes, but to rely on this every time whilst building a portfolio might get a little bit tricky.
So if you're considering selling a property, make sure you talk to your expert team, your accountant, your broker, and if you're using a BA to get a clear picture on how the property in question is performing in your portfolio. This way, you always make an educated decision that increases the chances of growing your portfolio and hitting your property goals. If you enjoyed this episode, hit subscribe and follow if you're on iTunes or Spotify so you don't miss any upcoming episodes. My name is Junge Ma, Lead Research Analyst at InvestorKit. I'll see you next time.
