What should you do with the profits from the sale of an investment property?
You’ve just sold an investment property for a tidy profit and now you have a big windfall coming your way. It’s a nice problem, but what should you do with that money?
Most serious investors will be already looking out for the next property to buy but, in the months before they find that golden goose, it’s wise to “make bank” with those proceeds.
“The answer would be to put that money in a term deposit with a bank,” advises Marisa Broome, principal of wealthadvice.
“You don’t have the timeframe for much else, apart from perhaps a bonus saver account where you put in a regular sum of money every month – say, $100,000 – and receive a bonus for that as an incentive to keep saving.”
The Commonwealth Bank, for instance, offers a term deposit of one to six months, or another of one to three months that can be rolled over.
It also offers the GoalSaver, a regular savings account with a variable bonus interest rate for a monthly payment, and the NetBank Saver, which offers a higher rate – currently 5.1 per cent – for the first three or five months.
SmartMoney Wealth Management co-founder Peter Kaleski recommends lodging money with a bank.
“It does sound a bit boring, but sometimes boring is good when it comes to money,” he says. “You never know how long it might take to find your next property; it could be months or weeks.
“So it’s best not to tie that money up for too long, and a simple online savings account these days can earn you upwards of 5 per cent, whereas it was only 2 per cent a couple of years ago.
“It means you can earn money and call on the funds when you need it.”
Kaleski says another option if you have debts is to use part of the proceeds from the initial sale to pay down those debts or offset them.
That could make good sense, especially if they’re debts, such as credit cards, that pay a high rate of interest.
Alternatively, the money could be used to offset the investor’s own mortgage, suggests property investment specialist John Pidgeon, author of the new book Sort Your Property Out & Build Your Future.
This could save you about 6 per cent daily at the moment.
“Then there’s a term deposit, but you have to make sure it’s not for too long, so you can take out the money if you find another property to buy early,” Pidgeon says.
“But whatever you do, you need to make sure you don’t put it into your regular account and fritter it away on lifestyle expenses.
“I’ve seen plenty of wealthy people wasting a lot of money!”
Most importantly of all, let it buy you time to find another property that will prove an excellent investment.
“That means a good location for long-term growth, a type of property – which 90 per cent of the time is a house and land – at a reasonable price point with an excellent yield,” he says.
Original Source Domain https://www.domain.com.au/news/what-should-you-do-with-the-profits-from-the-sale-of-an-investment-property-1259623/