Selling the property gives you more lifestyle options

QWe would like to ask for your opinion about whether we should sell our investment property, which we feel is not performing as well as we thought it should and invest the money in shares or exchange traded funds, put some in our super funds or keep it until retirement age.

The investment property is in Melbourne and valued at about $620,000, with $260,000 owing. The interest rate is 5.1%. I’m 55 and my partner is 54.

My income is $57,000 and my partner’s is about $20,000 a year.

In six months, we would like to travel around Australia for 12 months, which would be funded by rent from our house, which we own, some of the money from the sale of the property or savings, if required. I have $500,000 in super and my partner has $150,000.

My partner has $17,000 in NAB shares. We also have $30,000 in savings. After we have returned from our travels, I would go back to work part-time, gradually cutting back to retire before 60. We have no other debts.

This is a big call, William. I can give you some general guidance and a whack of commonsense, because when it comes down to it, the issue here is simple: will shares, an ETF or super outperform your investment property?

You will have the numbers on the history of your investment property returns. If not, you can soon work these out. You will know your purchase price. Add in costs such as stamp duty. That gives the starting number.

What is it worth today, less sale costs? That gives you your capital gain. You’ll pay capital gains tax on that. Then, of course, you have your rental income, less costs, including interest.

Property does not return much, after costs, in the way of yield in Australia. Due to the bias in our tax system, we all focus on tax-advantaged capital gains. So, I am sure most of your potential return is in any increase in value.

It is all good and well to talk about the long-term returns from shares and super. As you know, our big, low-cost super funds have been delivering more than 8% a year, on average, for many decades. But the question for you is not about the past, it is about the future.

Does your investment property sit in a location that may produce exceptional gains? Undoubtedly, property in high-growth areas can outperform super funds, in particular when gearing is used. But, more generally, super has outperformed property, with no drama around tenants or maintenance

I can’t call this one for you. It depends so much on your property’s past performance, location and potential. Personally, I love the diversification that comes from owning a home, an investment property, maybe some shares and super.

A good guide is if your property has not performed, this may well continue. I believe broadly based investments, such as super, are more predictable.

I can certainly see that the sale of the property, with some money invested in super and some outside super, gives you the lifestyle options you want.

To my mind, that is really important. After all, money is only any good for the choices it allows you to make.