Inflation has proven to be stickier than the Reserve Bank would have hoped. Whereas at the beginning of the year,there was an expectation that interest rates would fall in the back half of 2024,today most commentators seem to be guessing at drops in 2025 at best. There are some who even suggest rates may need to rise further.
Knowing when to sell up from an investment property that’s costing you too much can be a difficult decision.Simon Letch
Rents have risen around most of the country,so this certainly helps on the cash flow front,but as you note in your question,it’s still not enough. The situation you describe here is the reality of negative gearing.
I don’t possess a crystal ball to be able to tell you when rates will fall and your investment will become more affordable. You are in a positive equity position here,so if you choose to sell,you will walk out with cash in your pocket.
You would need to get clear on your capital gains tax position,but even allowing for this,it’s difficult to foresee you exiting this investment in a terrible position. Perhaps this is an opportunity to reset your strategy. There are lots of other wealth creation strategies out there without the stress of negative gearing.
There would certainly be value in you having some financial modelling done to determine whether you are on track to meet your medium and long term financial goals,and how those outcomes look with or without this investment property. It may be that given the cash flow drain required to hold this property,your long-term outcome is better without it.
I’m a 54 year-old and have been salary sacrificing 6 per cent of my wage to super since I started work as an 18-year-old. It is a state government defined benefit type and my current projected benefit at age 60 is roughly $2.3 million. My wife has about $200,000 in superannuation. Our mortgage is currently $195,000 and we have no other debts.Should I reduce,or even stop,my contributions and focus on paying off the mortgage faster?
Defined benefit funds come in many varieties. You should investigate whether the portion of your superannuation benefit that is over the transfer balance cap,currently $1.9 million,could be withdrawn upon retirement and used to boost your wife’s super,and clear any remaining mortgage.
Assuming this is possible,salary sacrificing may continue to make sense.
There could be an issue if you max-out your defined benefit multiple. Were this to be the case,the balance of your super would only grow by changes in your average salary,and new contributions would usually go into an accumulation account.
Defined benefit super funds have several attractions,but this potential to hit an upper ceiling with regards to the multiple is a meaningful drawback.
Given these complexities,and the sum involved here,I strongly encourage you to obtain detailed financial advice that specifically addresses your circumstances. Ideally try and find a financial planner with specific experience in the defined benefit fund that you are a member of.
Paul Benson is a at Guidance Financial Services. Questions to:
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