How Long Do You Need To Hold Onto A Property To Make A Profit?



Property investment can be a powerful tool for building long-term wealth. But it’s not about buying just any property – successful investing requires a strategic mindset.  

The key is to think of property as a long-term commitment, one that can span years or even decades.  

Understanding market cycles, timing your purchase well, and staying patient, even when the market fluctuates, are absolutely crucial to maximizing your returns. 

Successful property investors didn’t just get lucky; they made informed decisions based on market knowledge and a long-term vision.

The Peaks and Valleys

The property market isn’t a straight line – it goes through cycles of growth, adjustment, and then stability.

History shows that while these cycles are predictable, how long they last and how dramatic they are can change each time. Growth phases usually mean property values rise quickly due to factors like a strong economy or low-interest rates. After this, there’s often an adjustment period where prices may stabilize or even fall slightly.

Knowing where we are in the cycle matters! Buying during the growth phase can lead to big gains, but also carries more risk if a correction follows.  

On the other hand, buying during an adjustment phase might mean scoring a property at a lower price that could go up during the next growth cycle.  

Studying historical data can help you predict the approximate length of these cycles and make more informed choices about when to invest. 

What Decides the Holding Period?

There are two main schools of thought when it comes to property investing: market timing and time in the market. Market timing focuses on trying to predict those ups and downs of the market cycles, aiming to buy low and sell high. Time in the market, on the other hand, is about the long game – holding onto your investment and letting it grow over time.

Some investors, including investment property buyers agents, swear by theories like the “18-year cycle,” believing they can accurately predict the market’s peaks and valleys. While these theories can be interesting, successful investing requires more than just following formulas. It’s essential to have a strong grasp of market research, local conditions, and be ready to adjust your strategy when things change unexpectedly.

Staying on top of market research lets you know where the market is currently and where it might be headed. Understanding your local market in detail means you can spot those hidden opportunities or avoid areas with red flags. 

And being ready for anything – economic shifts, new regulations, changes in what people want in homes – means you can pivot as needed to protect your investment or seize new opportunities.

Entry and Exit Costs

The profitability of holding onto a property is significantly impacted by entry and exit costs, which can eat away at your overall returns. It’s essential to factor these costs into your investment strategy:

  • Stamp Duty: This government tax on property purchases is one of the largest upfront costs you’ll face. The amount varies depending on your state or territory and the property’s value.
  • Legal Fees: Lawyers are essential during property transactions. Their fees cover things like contract review, title searches, and settlement services.
  • Agent Fees: If you decide to sell your property using a real estate agent, you’ll be charged a commission on the sale price. This can add up to a significant sum.

The table below illustrates the potential impact of these costs on the profitability of a property investment:

Cost TypeEstimated Cost Range
Stamp Duty3-5% of the Property Value
Legal Fees$1500-$3000
Agent Fees2-3% of Selling Price

Given these costs, a shorter hold period may not allow for sufficient appreciation in property value to cover these expenses and yield a profit, underlining the significance of a longer hold period.

Long-term Growth vs. Short-term Fluctuations

It’s easy to get caught up in the daily ups and downs of the property market, but successful investors know to take a step back. Short-term fluctuations in prices are often just noise, driven by temporary factors.  

To really predict a property’s potential, it’s essential to focus on the long-term trends. These trends paint a clearer picture of where the property’s value is likely headed over the time you plan to hold it.

Profit Margins Over Various Holding Periods – The Sydney Case

Using the Sydney property market as a case study, we can examine the impact of holding periods on profit margins. The market’s volatility is captured in the following table, which outlines the property value changes over a span of six years:

DateProperty Value%Gain/LossGross Profit
Jan 2018$1,000,000
Jan 2019$949,000-5.1%-$51,000
Jan 2020$984,113+3.7%-$15,887
Jan 2021$1,020,525+2.1%+$20,525
Jan 2022$1,293,005+29.3%+$293,005
Jan 2023$1,136,551-12.1%+$136,551
June 2023$1,196,788+19.7%+$196,788

Let’s be honest, timing matters in the property market! This table shows how holding an investment for different lengths of time can lead to vastly different results, all due to those market cycles we talked about. For example, if you had bought in January of 2018 and sold in January 2022, you probably would have made a nice profit thanks to the strong growth during that period.  

However, if you had to sell in January 2023 after the market cooled off, your returns wouldn’t be nearly as impressive.

The table also reminds us that not all properties perform the same. Houses and apartments can have different growth rates and may react differently to what’s going on in the economy.

Investment Purpose and Strategy

Whether you’re buying a home to live in or an investment property is a huge factor in how you approach the whole process. 

With a home, personal preferences matter most – you want a place that feels comfortable and fits your lifestyle. Investment properties, on the other hand, are all about the numbers.  

The goal is to make money, either by the property increasing in value over time or by generating rental income.

This difference in goals affects everything! Investors focused on growth usually want to hold the property for the long haul to ride out the market’s ups and downs and see their property gain value.  

Those after rental income may adjust their strategy based on how the property performs and what’s happening in the market overall. And of course, investors have to be extra careful about tax implications!

Financial Calculations and Tax Considerations

Figuring out how much money you’ll actually make on an investment property isn’t as simple as just comparing the purchase price to what you think you can sell it for! There are a whole bunch of other costs you need to include in your calculations to get an accurate picture. This includes the upfront stuff when you purchase it (like stamp duty, legal fees, etc.), all the ongoing costs while you own it (management fees, maintenance, taxes), and the costs involved in selling the property.

Here are a couple of other key things to keep in mind:

  • Capital Gains Tax (CGT): This tax can take a serious chunk out of your profit when you sell. Factoring it into your calculations from the beginning is crucial. Thinking long-term can often help lower the tax.
  • Leveraging Property Growth: Do you sell up and pocket the profit, or use the increased value of your property to buy even more investments? This decision depends on the market, your personal financial situation, and how much you believe the property will continue to grow in value.

Conclusions and Recommendations

How long you hold onto an investment property is a big question, and there’s no single right answer. It depends on what’s happening in the market, your own financial goals, and how comfortable you are handling things like taxes.

Here are the main takeaways:

  • Do your homework, and be patient: Successful property investment isn’t about getting rich quick. It takes time to research the market, understand the cycles, and find the right time to make your move (whether buying or selling).
  • Get expert advice: Talking to investment property strategist or an investment property buyers agent like the Investor’s Agency can make a big difference. They can help you create a strategy tailored to your needs and navigate the tricky world of property investment.
  • Think long-term: The biggest profits in property often come from holding onto your investment for many years. This allows the property to gain value and lets you take advantage of the market’s natural ups and downs.

Of course, it’s important to stay flexible and be ready to adjust your plans along the way. With careful planning, smart decision-making, and a long-term focus, property investment can be a powerful way to grow your wealth, both through rental income and the appreciation of your property’s value.