Q. I live in Perth. I am 41 years old and earn $121,000, excluding super, in a full-time job. My employer contributes 10% super.
My wife is 42, earning $34,000 part time.
We have two kids, aged 13 and 17. We migrated to Australia in 2007. Our home is valued at $570,000 with a $400,000 loan.
We have two investment properties in Perth. One is valued at $450,000 with an interest-only loan of $365,000 and rent is $400 a week.
The other one is valued at $525,000 with a loan of $458,000 and rent is $430 a week. I have $85,000 in super and my wife has $35,000 .
We have $10,000 in an offset account and $60,000 in a redraw facility .
I have all kinds of insurance – life, TPD and income protection from super, plus trauma. I can save about $1000 a month.
In this situation should I hold the properties or sell them and reduce my mortgage?
Or do you have any other advice to improve cash flow and reduce financial stress. – Raj
A. Hi Raj. You have a fair bit going on in your financial life. Along with work and your teenage kids I am not surprised things are stressful for you and your wife.
But I don’t see a cash flow problem. I may be missing some other information but you very neatly summarise your situation for me when you tell me that you can save $1000 a month and you have solid cash reserves of $70,000 in your combined offset and redraw facilities.
So it looks to me as though your cash flow is strongly positive.
As a high income earner, your tax rate will be high, so any losses on your investment properties will attract solid tax relief.
Yes, it is always nice to reduce your home mortgage but my guess is that you are paying around 4.5% interest. Saving by adding to your redraw account basically earns that rate of interest, so while very safe it is not a very exciting return.
So if we are talking about financial stress, then selling an investment property and reducing your overall debt while paying down your home loan is quite OK.
But if your investment properties are well located and renting well, from a money perspective holding them makes sense.
I think your decision may be lifestyle based and not driven by cash flow. This really is a decision only you and your wife can make. In terms of other options, in your situation I would look at topping up super via salary sacrifice.