Sell the bad per­former

Money Magazine Australia - - Q & A -

QI am aged 55 and my wife is 54. We have a joint in­come of $180,000. Our home (val­ued at $500,000) is paid off, as is one in­vest­ment prop­erty ($300,000) from which we re­ceive a net in­come of $8000pa. An­other in­vest­ment prop­erty (on the Gold Coast) was bought be­fore the GFC. It is val­ued at $265,000 and has a mort­gage of $265,000, with a cur­rent off­set ac­count of $30,000. It makes a net loss of $6000. Our com­bined super is $210,000.

Would it be pru­dent to:

• Sell the mort­gaged in­vest­ment

prop­erty and then to salary sac­ri­fice the $8000 (in­come from the paid-off in­vest­ment prop­erty) at 15% with a com­pounded an­nual growth (cur­rently 8%) of the super plus what­ever cap­i­tal growth there is on the prop­erty; or

• Hold onto the mort­gaged prop­erty

and hope that the price of units on the Gold Coast in­creases and keep ex­cess funds af­ter liv­ing ex­penses (about $25,000pa) in the off­set ac­count; or • Sell both in­vest­ment prop­er­ties and put $150,000 into each of our super funds, then both con­trib­ute $25,000 a year into super.

Hi, Kevin. To give you an ac­cu­rate an­swer, I would need Gold Coast prop­erty ex­per­tise, which I sim­ply do not have. But I can give you some well-es­tab­lished prin­ci­ples.

Re­gard­less of where you own prop­erty, hav­ing three in the one area is not likely to be your best strat­egy. Ob­vi­ously, I love peo­ple own­ing their own home. A fully paid-off in­vest­ment prop­erty also causes me no prob­lems. You have helped me here by say­ing that it is per­form­ing well, giv­ing you 8%pa, so that sounds like a good one.

The other prop­erty seems not to be per­form­ing well. So I have to leave it to you to judge whether that will change, but in your shoes I would spread my risk and con­sider sell­ing the poor­per­form­ing prop­erty and, as you say, top up your super.

These are only broad prin­ci­ples but to me the idea of hold­ing two prop­er­ties and then top­ping up your super meets well-es­tab­lished prac­tice when it comes to in­vest­ing.

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