‘Should I sell my investment property and put the $400K into my super?’

Jan 24, 2020
When you reach a certain age, it's important to tidy up your finances and decide between what stays and what gets cut. Source: Getty.

Q: I am single and will turn 64 this year. I have an investment property in Sydney and live a bit further up the New South Wales coast. I currently have $170,000 in my superannuation account. I was advised to sell my Sydney property before I turn 65 so that I could put $100,000 into my super prior to the end of the financial year and then, in the new financial year, put in the maximum amount of $300,000. Then, I believe I cannot put any more into super for three years.

I will have to pay capital gains tax, which will be approximately $80,000. There is also still a mortgage on the Sydney property and it needs bathroom renovations done that will cost around $30,000 to $40,000, so I have been told. If I do decide to sell it, I would like to have the renovations done to maximise the selling price but also to limit the time on the market.

My dilemma is, should I sell? Do I need to sell? Can I draw down money from my super to renovate an investment property? Should I keep working or cut back to three days a week. There are so many things to think about that I don’t know where to turn!

A: This is a very interesting question and difficult to answer without a lot more information, which is why I’ve written more in the subject of investment properties in my column this week – you’re far from alone in having such questions.

In general terms, I can confirm that as your total amount in super is $170,000, you are able to trigger the ‘bring forward’ rule and make non-concessional (after tax) contributions of up to $300,000. The suggested arrangement of contributing $100,000 before the end of this financial year followed by $300,000 in the next financial year is viable so long as you are under 65 when the $300,000 contribution is made.

The question is whether an additional $400,000 in superannuation puts you in a better financial position than retaining the rental property with or without the mortgage.

As previously noted, this question cannot be answered without a greater understanding of your personal financial position. If I was giving comprehensive advice I would be asking for an understanding of your entire financial position, including your current salary (and what it would reduce to at three days a week of work), your living costs now and in retirement, any capital commitments (such as your car, holiday plans, home renovations etc), the amount of the mortgage on the property and how much you will generate after tax, selling costs and mortgage repayment from a sale, the amount of net rental (after expenses and mortgage repayments) you currently receive, any other savings apart from super and so on.

I would also need an understanding of when you planned to fully retire.

Certainly, superannuation can provide a highly tax-efficient environment for investment, however, if your situation were such that you paid little or no tax anyway, superannuation may not necessarily be the best approach. Similarly, there are implications for any entitlements to Age Pension (now and in the future) based upon your overall investment position and the choice of superannuation and non-superannuation alternatives.

A further issue is being a remote landlord particularly as you get older. Some people will ultimately need to sell their rental property in any event if it gets too difficult to manage. Also, the cash flow from your rental property after expenses and mortgage repayments may be too small to assist you much in meeting your living costs in retirement compared to other investment choices.

The problem with real estate is the lack of liquidity – your can’t just sell off the front porch when you need some cash. Once again, it is impossible to make a recommendation in this regard without a lot more information. Accordingly, it may be a question of not whether you sell your rental property but when.

My main recommendation would be to seek professional, unbiased advice from a suitably qualified financial adviser or accountant to assess the most appropriate strategy in your circumstances. They would need all the information I have referred to above to provide this advice. I suggest this will be money well spent given the complexity of your question.

If you have a question for Starts at 60’s money experts, email it to [email protected].

Important information: The information provided on this website is of a general nature and for information purposes only. It does not take into account your objectives, financial situation or needs. It is not financial product advice and must not be relied upon as such. Before making any financial decision you should determine whether the information is appropriate in terms of your particular circumstances and seek advice from an independent licensed financial services professional.

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