Ask Paul: Is it time to sell our investment property?


Dear Paul,

We 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. 

ask paul clitheroe is it time to sell our investment property

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. - William

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.

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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 Money TV show, and 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. Ask Paul your money question. Unfortunately Paul cannot respond to questions posted in the comments section. View our disclaimer.
Robyn van Stom
April 27, 2023 2.45pm

I am 82. MyySuper fund returns for the Balanced Option have been poor over the past few years. The mandatory 7% drawdown will come into effect end of June 23. Would I be better off withdrawing a large amount and putting it into Term Deposit which would earn much more even at 4.5%. I realise that earnings are tax free for Super drawdown but I will be forced to drawdown funds which have poor returns anyway and am too old to wait for the market to recover whenever - years?

Manny Jardim
May 13, 2023 3.49am

I would like to see Paul s and reply

Money magazine
May 15, 2023 9.14am

Hi Robyn,

Unfortunately Paul Clitheroe is unable to respond to questions posted here in the comments.

Please click here to submit your question to Paul:

Debbie Aston
May 12, 2023 11.28pm

I am just 70 and single, having just moved from the UK. I could really do with some advice. I need another income flow. Where should I invest 300k ?

Money magazine
May 15, 2023 9.40am

Hi Debbie,

Unfortunately Paul Clitheroe is unable to respond to questions posted here in the comments.

Please click here to submit your question to Paul: