Should I sub sell my investment property? When is the right time to sell?

Property Value

“Should I sub sell my property now before it completes” is a get asked that question a lot. Typically, my answer to investors; particularly those who have bought off plan, is don’t sell. Real estate by its very nature is a large expensive asset class, the market moves slowly and transaction costs to buy and sell are very high. However, if you do want to sell these are the things you should consider in that process.

First, do you have the right to sell? Sounds silly right, but unless you have legally completed on your property you may not automatically have the right to sell. So how do you find out? I would start by asking your conveyancer or read your Sale and Purchase Agreement – your rights and obligations will be covered in the document.

The Sale and Purchase Agreements - this will contain details of any rights you may have to sub sell or assign

Generally, Sale and Purchase Agreements will have one of 3 typical arrangements, which are:

No right to Sub sell or Assign

If your agreement says this, I am afraid you have limited options. If the agreement does not include the right to sell prior to completion, it will have been done for a reason. Most likely because the developer has a lot of apartments to sell and they don’t want to compete in open market with their own development!

If you are in this situation, I would have a conversation with the developer – they may be happy to work with you in order manage the secondary stock on the market from their development (and how it is presented). All good developers will have a strategy to deal with these scenarios so I would start there.

Right to Assign your Contract

If you will have the right to ‘assign’ the benefit of your agreement (i.e. buying the property) to another party. In this scenario, the new purchaser will assume your position in the contract. There are two things you need to be aware of with Assignments:

  • Generally you will need the developer’s permission to assign the contract so you need to understand the process and in which scenarios could the developer decline?
  • More importantly, just because you assign your interest in the contract it does not mean you have exited the contract. Generally, if the new purchaser defaults on the agreement the agreement will require you as the original contract holder to ‘complete’ and purchase the property as if you were the purchaser.

Right to Sub Sell

This is the ‘cleanest’ possible way to sell an off-plan property. In this situation you are simply sell the property to a third party. Generally, there will be limited recourse form the developer if the new purchaser fails to perform their obligations under the agreement.

Can you use the images? Marketing materials cost a lot of money, perhaps far more than you imagine – the cost of getting the photography and CGI’s, etc are all costs the developer has assumed in order to sell and promote their property. These materials are the Intellectual Property rights of the developer. You do not have the right to use these images to sell your property nor does anyone else.

Developers have a lot of their own staff constantly calling agents, etc asking them to stop the unauthorised use of images. I would simply ask the developer in the first instance what their process is, the good ones will have a plan and generally a limited supply of images they will allow you to use in promotion and marketing.

Agent, one or many? Good question? I would look at relevant property portals to see who is promoting units in your development and speak with them. In my experience with re-sales it is generally the smaller agents who perform much better than the big agents. My advice is to use an agent to re-sell, try and pay a fee slightly more than the typical market or provide an incentive for performance. Unless you really know an agent well, I would go with either two agents or a multi agent approach for re-sales; particularly if you are paying a competitive fee – competition tends to create better performance!

What are your exit costs? Costs to sell property can be very high, agency fees tend to range between 1 – 3% to sell, in addition you are most likely going to need to pay a conveyancer to transfer Title. In many markets you may also need to pay a Stamp Duty at the time of sale as well as Capital Gains Tax. These costs will be significant. And if you investigate these costs you are likely to find out that over the longer-term you are simply better off being a long-term investor.

Finally, what are you going to do with the money? If you are thinking of selling to buy another property. Your exist costs and acquisition costs are likely to be substantial. You are more than likely to be better off refinancing your existing property and purchasing another property with your gained equity. If you don’t have enough equity in your existing property you may well be far better off holding off until a time which you are more liquid.

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