BE SELECTIVE FOR A WINNING BUY IN ROCKINGHAM

14th February 2007

Property experts are urging investors to think twice about offloading their property in response to the latest changes to superannuation laws, saying it could be one of the biggest mistakes of their lives.

Property Wizards Buyer's Agency managing director Liz Sterzel said changes to superannuation laws, which allow people to inject up to $1 million into their super fund this financial year, could limit important investment choices, result in a financial loss for retirement and set investors back decades.

"If, based on these changes, investment property owners are tempted to sell up to pay out the mortgage, the capital gains tax and put the remaining cash into superannuation, they could be making a huge mistake and cheat themselves out of a comfortable retirement," she said.

"For some investors who may be uncertain about the future of the property market, selling could seem like an attractive option, but in the long run it's more than likely they will end up with a lot less than if they'd kept hold of the property."

Ms Sterzel said she had run through many scenarios involving a full range of interest rates, equity, income and property growth rates, and retaining the property was almost always the best option.**

"For example, say you bought an investment property three years ago for $300,000, which is now worth $500,000 and is growing at 8 per cent a year," she said.

"Let's say your weekly income is $500 and you owe the bank $375,000, if you were to sell now, after paying the mortgage, capital gains tax, agent and selling fees, you would have around $80,000 cash available to inject into super today.

"At an average growth rate of 8 per cent, $80,000 your super fund would give you just over $173,000 to retire on in 10 years time.

"Had you retained that property at an average 8 percent growth rate and sold after 10 years, you would have just over $344,500 cash in your pocket after all the relevant deductions."

Ms Sterzel said selling an investment property in order to invest cash into super meant investors would lose the benefit of leverage and gearing.

"The problem with the limitation of a cash injection means you cannot borrow any further funds against your investment which could limit your future investment options," she said.

"Even though the legislation changes may offer income and capital gains tax concessions, it may not compare with the amount you stand to lose if you sell your geared investment property."

Ms Sterzel said investors should sit down with a finance expert and carefully consider the pros and cons as well as the 10 year projection of both property and super investment options.

"I strongly advise people considering a property sale to sit down with an unbiased, financial expert who can crunch the numbers and make long-term projections for their specific situation," she said.

Ms Sterzel said investors should ask an expert to evaluate the following in addition to their usual considerations, when making the two long-term financial projections:

For property retention, consider:
" Anticipated long-term capital growth of the property
" Net monthly cash flow after all rental income, expenses and tax benefits, also determine how to best manage the cash flow
" Capital gains tax and final selling costs
" Net amount of cash in hand after the projected sale date

For superannuation investment, consider:
" The net amount of cash left to invest in superannuation after paying the mortgage, capital gains tax and selling costs
" Anticipated growth percentage of the fund, after fees and taxes
" Net amount of cash in hand after the projected sale of super

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For more information, please contact
Mr Trevor Dunkley
Director
Property Wizards
trevor@propertywizards.com.au
Tel: (08) 9381 7450