Ask Paul: Should I sell my investment property for super?

Belinda receives a disability pension - should she sell her investment property to top up her low super balance?

Reader question

Hi Paul,

I am on a disability pension, own my own home and have an investment property with a mortgage of $360,000, with rental income of $470 per week.

Both properties are located in Woodgate, in Queensland.

My question is: is it time to sell and put profits into super (of which I have only $30,000) or are there other options I may not have thought of? - Belinda

Paul's response

I am so pleased you own a home debt free, Belinda. This instantly puts you in a pretty solid situation. But I am also aware that the running costs of a home are not small and must cut into your disability pension.

My suspicion is your investment property is pretty much breaking even. I'd imagine your mortgage is about 6% and most likely interest only, costing you about $22,000 a year, plus maintenance, insurance, agents fees, rates and so on. Your rent is $24,400 a year, so this may turn into a small annual loss.

On the upside, you have equity in the property and, hopefully, it is increasing in value.

I know absolutely nothing about property in Woodgate, but some research online tells me the area has shown good growth. Realestate.com.au says this has been about 5.5%pa in recent years.

But this is not helpful if you are finding money tight. Here we have to play a balancing game. It seems realistic to say the property is likely to grow in value. But you can't access this unless you sell.

Equally, a good, low-cost super fund should, over time, provide similar returns or better than property.

I can only give you general information, Belinda, because there is so much I don't know about you, your age, family, risk profile and so much more, so I do want you to seek some professional advice. Your accountant or super fund should be able to help here.

I think cash may be a bit tight for you, so a sale of your investment property generating a profit could be very handy for you. But you need to understand the costs involved in selling, how much capital gains tax is likely and, most importantly, will the sale have an impact on your disability pension?

If you are older, super may be perfect for you; you could draw down from it. But if you are younger, will you simply be locking away your money in super?

As you own your home, it makes sense to spread your risk by selling the investment property, then enjoying some extra income. But you need to seek advice. What I hope I have done here is to give you the questions you need answered before you proceed.

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