At 3%, the rent sure beats the return on cash

After inheriting his mum’s unit Greg is planning his next step, but ...

QWe have a question about our sensible next move. My partner and I are 60 years old, mortgage free and have just under $500,000 in cash deposits earning 1.25%. Our combined super policies are around $380,000.

My mother just passed away, leaving a small unit worth $280,000 with a $200,000 reverse mortgage, which is costing $1000 a month.

We could pay out the loan and pay my sister her share and effectively pick it up for $240,000. Rent return would be $250 a week after spending $20,000 to upgrade it to standard. Is that a good strategy at this point in life?

Greg, the answer here is totally linked to how good an investment the unit is. You should be able to work this out by looking at the price your mum paid and its value today. Then add commonsense: the location of the property, its proximity to public transport, jobs, schools, facilities and, of course, a decent coffee.

I think you can draw your own conclusions here.

The rent at $13,000 a year, before expenses, is pretty good. I would think after running costs it would give you some 3% a year, which is certainly better than your cash investments. The other big plus is that you know the property, its flaws and advantages. Nor would you incur nasty buying costs such as stamp duty.

In your shoes, providing your sister is happy with the value you agree on, and the property stacks up as a good future prospect, I would go the way you suggest. You have a solid amount in super and would still hold quite a bit of cash. So, yep, do your research, check your sister supports the whole idea and on this basis

I agree with the plan.