Updated: Jun 25
My investment property is my superannuation!
Having worked in financial planning advice for over 20 years, I have heard this a lot.
"I'd like to live off the rent from a rental property in retirement. Wouldn't it be better to buy one rather than contributing more to my superannuation?"
An investment property can be part of your retirement plan, but it is not your super.
PROPERTY VERSUS SUPER
Let's take a closer look:
This article discusses the pros and cons of investing in a diversified retail or industry superannuation versus buying an investment property outside of super.
Property versus Super - Property Pros
You can talk about the property and the tenants you have living there and feel a real connection to it.
You can drive by, inspect, touch, and smell a house (sniff, sniff, does the tenant have a cat?) It feels "real".
You can negatively gear the property and reap the tax benefits.
Property versus Super- Property Cons
When combined with other income, the rental income less expenses must be enough to support your living expenses in retirement. You can't sell a bedroom if you need a lump sum of cash.
Subject to the usual taxes on income and gains
To purchase a property, you may need to borrow money and possibly use the equity in your home as security.
There is only one property - all your eggs are in one basket. As a result, it is not well diversified and is a riskier investment than you might think.
Time to manage the property (or to manage the manager!) Dealing with strata committees, ensuring maintenance, and dealing with tenants' "life issues" (car parking disputes, noisy music, smoky BBQs, pet problems).
Super or Property - Superannuation Pros
Is tax-efficient - superannuation is taxed at a concessional rates, which can result in significant savings.
Simple to manage (or should be).
Diversified - you can invest in multiple assets or let your superfund do it.
Ability to invest in a way that's right for you and your risk tolerance.
It's liquid - you can withdraw lump sums or increase regular payments in retirement.
Super or Property - Superannuation Cons
Fear that government will change superannuation rules, and you'll lose out.
Not really understanding your superannuation and feeling a lack of control.
Benefits of both Superannuation and Property
Both superannuation and investment properties can give you great returns.
Fees, taxes and costs - look at the whole picture (fees, strata costs, real estate agent costs, repairs, rates, advice costs, tax, accounting fees...). Work out the actual rate of return rather than just focusing on how much rent you are receiving or how much your super balance has changed.
Risk - all investments have them be realistic and informed about what they are.
Property can certainly be part of your retirement strategy, but don't discount the superpowers of super!
What you need to know
This information is provided by Lush Wealth Financial Planning Advice and Money Coaching.
We specialise in financial planning advice for women. We are a team of dedicated financial advice professionals led by Certified Financial Planner Christine Lusher.
The information contained in this article is of general nature only and does not take into account the objectives, financial situation or needs of any particular person. Therefore, before making any decision, you should consider the appropriateness of the advice with regards to those matters and seek personal financial, tax and/or legal advice prior to acting on this information. Join the club of ladies who have their finances sorted - contact us today to get started.
We are available for appointments in our Newcastle or Sydney offices or Australia wide via video conferencing. Ladies, our Lush Life Financial Planning Advice Program has been designed specifically for Australian Women by a team of dedicated money experts.