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Ask Paul: I read The Barefoot Investor - have I made a big mistake?

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Dear Paul,

I'm retired, aged 66, and a self-funded retiree. I live with my partner, who owns the home we live in. We are financially independent of each other.

I bought a residential investment property 10 years ago and have 20 years left to repay the remaining $200,000. I've just read The Barefoot Investor and now I'm concerned that I've made a big mistake by investing in a residential property, and also by having a fixed interest rate. One of the strategies suggested in the book was to invest in a property trust like BWP Trust. However, this particular trust is no longer recommended.

ask paul clitheroe i read scott pape's book should i sell my investment property

Should I sell my rental property and put the maximum amount of money ($1 million) into super, and invest the rest into a property trust?

Or do you have any other suggestions for the most profitable use of my money? - Carmel

Scott Pape, the author of The Barefoot Investor, is a terrific bloke. I've known him since he was a young adult and I like his values, his ethics and his advice. When you write a book you cannot take every individual's situation into account. I've written plenty of books and you can really only provide broad information. An author has no idea who you are, your age, your risk profile or anything about you.

I know Scott would not disagree with me here. You've owned your investment property for 10 years. How has it performed with rent and capital growth? If it has done reasonably well, and by reasonably I mean around 3% income after running costs and capital growth of, say 3% to 4% a year. If it is performing well, I see absolutely no reason to pay selling costs, capital gains tax on any profits and the brokerage fees to re-invest!

If it has performed poorly, sure, getting rid of a bad investment makes sense. But even if you did that, I'd be thinking that a diversified pool of assets would be a much better idea than a single property trust. Super is a great retirement asset, but here I would want you to seek advice. I don't see how you could pop $1 million into super these days.

More importantly, though, the real issue is about your property. If it is performing nicely and likely to do so in the future due to being in a decent location, I'd hang onto it.

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Paul Clitheroe AM is founder and editorial adviser of Money magazine. He is one of Australia's leading financial voices, responsible for bringing financial insight to Australians through personal finance books, the television show Money, radio, and most notably this publication, which he established in 1999. Paul is the chair of the Australian Government Financial Literacy Board and is Chairman of InvestSMART Financial Services. He is the chair of Financial Literacy at Macquarie University where he is also a Professor with the School of Business and Economics. Click here to email Paul your money question. Unfortunately Paul cannot respond to questions posted in the comments section.
Comments
Angela Todorovic
February 15, 2021 2.54pm

Hi Paul

My Husband and I are downsizing to a smaller property hopefully soon, we are looking at purchasing a new build home for $520-540k with a loan amount of $415k at the most.

I will be working till 60 to 62 years of age (I am now 57) upon which we will either sell this property or lease it, whilst we travel. My husband will be retiring this year.

We have no other debts.

My question is, I am thinking of fixing the interest rate of 2.29% for 5 years, is this a good move in our situation?

Many thanks in Advance for your advise

Angela

Money magazine
Verified
February 15, 2021 3.11pm

Hi Angela,

Thanks for your email.

Unfortunately, Paul cannot respond to comments, but we will pass your question along to him for his consideration for a future issue of Money magazine.

- Money team

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