Wiser to rent holiday home than buy one

MY partner and I own our home outright, plus other properties, and have combined super of $490,000, plus $670,000 in savings. We have no other debts or liabilities, and no plans to have children. We would like to buy a holiday house, which could also be rented out as an investment property. What is the best investment strategy in planning for our retirement? Can we borrow against one of our properties, and what type of loan would be best?

Even though you have not given specific details of the value of the properties you own, you appear extremely well placed for retirement. I suggest you think twice before you buy a holiday home – you’re usually far better off to invest elsewhere and rent as needed.

It would be a different matter if you intended to retire to this house at some time in the future, as you could buy it now to lock in today’s value. You could certainly borrow against one of your properties for investment and, if you are both working, should have this loan on an interest only basis if possible to maximise tax benefits. You should also be trying to get the bulk of your assets into superannuation if this is possible. I HAVE been reading about comprehensive retirement income products – I have never heard of them. Could you please give me some more information?

The technical term is Comprehensive Income Products for Retirement (CIPRs) and you will hear a lot about them in years to come.

They are being developed due to the propensity of many retirees to underestimate how long their funds will last, and consequently live a much more frugal life than they need to.

Obviously, the unknown question is how long a person is going to live. The industry is trying to develop a product whereby part of a person’s superannuation is set aside in some sort of deferred annuity to be accessed only at a future date – possibly at age 85.

This would enable older retirees to have a better standard of living secure in the knowledge that if they make it to 85 there will still be funds available. Obviously designing such a product is extremely difficult, but I understand that some progress is being made. THE May Budget had something about not allowing tax deductions for a vacant investment property. Does this include accidental periods in between tenants? Or is it just aimed at people with properties not genuinely on the rental market?

Under the present rules, if you are buying land on which to build an investment property, you can claim holding expenses such as interest and rates as long as such expenses are part of an ongoing process to build a rental property.

But from July 1, 2019 you will no longer be allowed a tax deduction until the construction is completed, an occupancy certificate is received and the property is listed as available for rent.

If you intended to retire to this house at some time in the future, you could buy it now to lock in today’s value