I'm semi- retired with a super balance of $210,000 and wish to invest $200K in a 12 unit housing complex in Esk in SE Queensland. I own the land (value $150,000). I own 4 other houses valued at $1,300,000 with a $600k mortgage. I have $75k saving, have access to $250k cash in few years and can access $150k if I sell a house now. I also have other income of Gross $36,500 pa and no dependants. I'm looking to get an income from this investment to help fund my retirement. I consider myself low-risk and would like to see a return in 5 years. Is this a good investment or is there a better way to secure retirement income?
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Thank you for your question Glenn.
There are a number of clarification questions that would need to be explored in relation to this case to provide appropriate advice. These questions include (but are not limited to) issues such as:
- Are you intending your super balance to fund all or part of this proposed investment?
- Understanding the capital gains tax liabilities on these properties should you dispose of any;
- Is one of your properties your principal place of residence?
- What are your Income needs in retirement?
Your overall question is, “Is this a good investment or is there a better way to secure retirement income?
In relation to the first part of the question, it would be difficult to assess, as this is a very particular type of personal investment that would need to be judged on criteria such as
- Cost to build 12 units:
- Likely capital growth;
- Property and rental market demand in that location;
- Net rental returns for this investment;
- Ability to resell in this market.
Given the information you have provided, it is evident that the majority of your wealth is already in direct property and an investment in the Esk property will even skew this allocation further. I acknowledge that you see yourself as a “low-risk” investor, but by any objective measure, our industry would not see you as low-risk, given your current and proposed investment strategy. In summary, I would be a little concerned that you “have all of your eggs in one basket” (so to speak) and that diversification would be a key to protect your wealth and available cash-flow into the future.
You are clearly comfortable and experienced with property investments, but there may be an alternate way to secure retirement income. As a general rule of thumb, property is an excellent way to accumulate wealth as it provides a fixed savings regime and tax deductibility of expenses. When our focus turns to retirement income from our investments, property often does not provide flexibility and liquidity of income, and tax deductibility can become less of an issue.
Depending on your age, (which determines your access to your super funds) being able to put money into a Superannuation Income Stream allows you to take a advantage of Tax Free Income, with the flexibility of taking the payments you need, when you need them.
Glenn - in your situation, as a low-risk investor, I would think seriously about taking steps to diversify your overall portfolio so as to:
- Provide a more flexible income stream in retirement;
- Limit your total exposure to direct property;
- Take advantage of Superannuation Income Streams which provide flexible, Tax Free Income.
In practice, making strategic contributions into super, including Concessional Contributions which minimise the impact of Capital Gains Tax (if you sell a property) as well as Non Concessional Contributions (where no tax is applied). An example may be: to sell a property and then pay down the mortgage (as interest deductions may become less of a goal going forward, and also protect yourself from future interest rate rises).
Any opportunity to put money into superannuation enables you to actively diversify, build a dependable cash flow and minimise tax as much as possible.
You would then convert these funds into a Superannuation Income Stream which can provide you:
- An alternative and complimentary growth strategy;
- Tax Free Income and growth (if over 60);
- Liquidity and flexibility with income payments to you;
- Access to these funds (without tax consequences) as opportunities arise.
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