At some point in your life, you may decide it’s time to think about getting out of property investment. You may be approaching retirement, or the amount of work required to make your portfolio compliant may be overwhelming, or you may simply want to get rid of the stresses of owning rentals.

You need an exit strategy – which can be more complex than it might sound. With such low interest rates, money in the bank is almost going backwards, while property and shares keep charging ahead even in these uncertain times.

For Auckland investor Rodney Attwood, owning property has given him plenty of choices, which is good news but now he needs to weigh up all his options and think about the best move for his future retirement. Should he sell them all and put the money somewhere else? Just sell some and reduce debt? Or sell some and invest the cash, leaving the loans on the other properties? And could he and his wife be in a strong enough position to retire early?

“I might live another 30 years after retirement,” he says, “so I need to invest wisely. But none of us can guarantee we’ll make it to 95, so I want to live a bit as well. I’d like to leave some to the kids, but also spend a little bit now – have a dollar each way!”

Sell Them All And Live Off The Cash

The simplest and cleanest way to exit the market is to sell all your properties and then work out what to do with the cash. That will get rid of any stress factor of managing the properties, and you’ll have a big lump sum of money. That could be enough to set you up for life.

“One of my clients bought a cross-lease house in Titirangi 30 years ago for $25,000,” says Mark Honeybone, director of Property Ventures. “They sold it last weekend for $630,000, spent a small amount on a kitset home, which they had shipped to Rarotonga to be assembled. They’ve moved to Rarotonga, they’re living in a new home and they’ve got more than $500,000 in cash to live off – it shows you can live the dream without being a high-end property developer or investor.”

But don’t jump into selling your portfolio without having a plan in place. You should have a good reason to sell, says David Green, director at adviceHQ. There are considerable costs to selling and a sale may have tax implications for your trusts or companies: “You always want to know the impacts before you make the decision. There’s no point realising the equity, then after the sale going, ‘What’s next?’ You might regret it.”

Sell Some – But Check Your Lending First

Considering that your properties are probably yielding much better rates than you could get in the bank, you may prefer to sell some, but not all of them. One option is to use the sales proceeds to pay down debt on remaining properties.

“If I had two with debt and they’re only washing their faces, I would freehold them,” says Geoff Hamilton, chartered accountant and director of SME Financial. “I would sell off enough to create more cashflow and give me the revenue to live off – capital gains are very nice, but you can’t live off thin air, you need disposable income.”

Of course, you may also have other uses for that money, whether it’s a holiday, a sportscar or a higher earning investment.

‘I would sell off enough to create more cashflow and give me the revenue to live off – capital gains are very nice, but you can’t live off thin air, you need disposable income’ GEOFF HAMILTON

“Paying off debt is almost a reflex action, but it’s not always the smart answer,” says Attwood. “Are you better to diversify your investments? You might want to spread your wings a bit, particularly with interest rates as they are at the moment.”

If you do have a plan in mind for your sales proceeds, it’s important to remember that the bank can dictate how you spend the sales proceeds from your rentals if you still have debt with them.

“The bank can demand any loan at any time, and they can take every dollar of your proceeds to pay down other debt. They will never release a property unless you can prove you can service the existing debt,” says Joel Oliver, director at SuperCity Mortgages. “It’s dealt with case by case and you have to provide all your financials – it’s like applying for a loan again.”

This isn’t well-known to borrowers and can come as a nasty surprise, Oliver adds: “Sometimes investors have sold a property and they plan to buy a boat for $300,000. We have to say, ‘Sorry to burst your bubble, but you’ve got to prove you can keep the remaining debt’.”

It’s not necessarily a problem to head into retirement with even significant debt, if the bank is happy with its calculations of your financial position, says Oliver. But it takes time to get answers from the banks right now and you need to be informed before you decide to sell: “The best advice I can give you is to start early.”

Where Do You Put Your Money?

If you do realise a large sum of cash, how can you make it last as long as possible? Traditional safe havens like savings accounts and term deposits are paying such low rates as to be falling behind inflation, which would erode your money over the years. Instead, investors are turning to the share market and property. Attwood points out that liquidity is important in retirement – you need quick and easy access to your money. And you don’t want to be taking big risks, either, says Hamilton:

“You don’t want your capital decimated by a share market crash – you need that income. In retirement you want to avoid high-risk investments. A managed fund might work. But if you have a freehold property returning even 4%, why would you sell it right now?”

One reason you might sell is to reposition your portfolio. Several of Honeybone’s clients are selling older properties and buying fewer, newer ones at lower interest rates. New houses mean lower maintenance costs and easy compliance with the Healthy Homes standards.

“I have quite a few buyers who are selling to refocus,” says Honeybone, whose own strategy concentrates on buying new properties off the plan. “I think when the market is good, it’s a good time to get rid of [properties] that aren’t performing and chuck your money into something else.”

Oliver, too, says many of his clients are downsizing to reduce debt and improve cashflow: “Often they went hard and fast acquiring properties, and maybe their cashflow is terrible, the [rentals] need renovating and they’re a bit over it. Saving for retirement is one thing, but are you living how you want to live now? It’s about finding that balance.”

Creating An Exit Plan For Retirement

One reason that property investment is so attractive is that it gives us options. Sometimes, there can be so many options that it’s hard to evaluate them. This is where you need some good advice to calculate the likely outcomes of various strategies.

“Yeah, I normally hate telling people to get professional advice,” Honeybone says, “but you really should talk to a financial person who’s independent and doesn’t have their own agenda.”

Your accountant can consider the tax and structure of your different options, while your mortgage broker can help you assess a range of debt scenarios. A financial adviser should help you come up with a plan to balance out the competing demands of a decent lifestyle now, a comfortable future and the potential for you to live for many years in retirement.

“They can plan out how much cashflow is required for your retirement, and where it might come from,” says Green. “You might need to change your asset allocation to get the outcome you desire. You might need a higher cashflow property instead of one with low cashflow but great capital gains, and maybe you need dividend stocks instead of capital stocks in the share market.”

Most importantly, he says, take control of your choices so you can make an informed decision. The worst-case scenario is to make a hasty sale and regret it, or to have your back against the wall, in need of cashflow, and be forced to sell.

“Surround yourself with well-informed people, allow yourself time to get organised, and plan well ahead,” says Green. “From what I see, the more organised people are, the better it seems to go, and the better results they get.”