Would it be wise to sell the unit and invest the proceeds in super and a managed fund - or similar?

Q.

I am 53 years old, single, still working full-time and have $200,000 owing on a small investment property which is worth around $400,000. The property has been rented since purchase in 2001 and I have been claiming the interest as a tax deduction. I have the bulk of the loan fixed to August 2008 but after that am concerned that I will not be able to service the loan at the higher interest rate. As I do not own my own home I have to rent, and do not think I can afford the repayments if I live in the investment property. Would it be wise to sell the unit and invest the proceeds in super and a managed fund - or similar?

You will need to do a budget to find out if you can afford the repayments if you get a rate rise. I suggest you work on nine percent to be on the safe side but also consider moving the loan to interest only if it is not on an interest only basis now. Even at nine percent the interest only payments would be $18000 a year fully tax deductible, so I doubt there would be a large shortfall. Also, make sure you are claiming all the depreciation and building allowance deductions that are possible. A quantity surveyor will be able to assist you in this regard.