My son will make a tidy profit from selling an investment property. What should he do now?

My son, 31, has put his investment unit on the market. He paid $210,000 about six years ago, and it should sell for $625,000. How should he invest the money he will have made after the sale? He owes $120,000 on his loan.

Investing after a property sale depends on your goals. Credit: iStock

Wow, what a great result for your son. On the raw buy-and-sell price, that’s an almost 20 per cent return per year. Factoring in leverage, it’s more than 30 per cent a year. Assuming the price gain isn’t the result of major, expensive renovations, it looks like he timed his entry and exit beautifully.

With the mortgage cleared and allowing for transaction costs, he should end up with about $500,000. The first thing to do is set aside some money for the capital gains tax bill. His accountant can calculate this for him. He may be able to offset some of this via tax-deductible superannuation contributions.

With the funds remaining, the appropriate investment depends on his goals.

Does he want to buy a home? Maybe he already has a home and wants to reduce his mortgage.

If instead he’s looking for long-term growth, then an investment portfolio with a focus on shares is likely to fit the bill.

If he’s got young children, perhaps he puts some money in an education savings plan for them.

Or perhaps he’s looking to go back to study himself, and so needs this money to live off.

My point is, the investment decision comes much farther downstream in the planning process. Encourage him to spend time determining his objectives. And in a shameless plug for my profession, this scenario would be a great example of where the help of a financial planner could be valuable, helping with both defining and prioritising his goals, and the ultimate investment strategy.

I am paying too much tax and need to reduce my personal tax and increase my retirement nest-eggs. Can you please advise the best financial strategy to reduce my personal tax until I retire and increase my retirement nest-eggs.

I am 62 and hope to work until I am 70. I make maximum superannuation contributions each year and have about $1.2 million in super, $500,000 in other investments, an investment property worth about $2 million debt-free and generating $600 a week, and I own my Sydney home. My income is about $225,000 a year.

We are fortunate to live in a country with one of the highest living standards in the world. Whether we are considering healthcare, community facilities, personal freedom and safety, education, infrastructure, or support for those in need, we are incredibly lucky. This is made possible by the taxes that we all pay.

From what you’ve said, it seems you are in a strong financial position and making good use of the superannuation system. I would, therefore, question your assertion that you are paying too much tax and need to increase your retirement nest-egg. Given seven more years of planned employment, your superannuation will likely push through the maximum that can go into a tax-free pension. The tax-free income that will flow from this source, combined with your rental and other investment income, should provide you with a very comfortable retirement.

If you are particularly determined to pay less tax, perhaps you could consider making charitable donations as a way to reduce your overall wealth.

Paul Benson is a Certified Financial Planner at Guidance Financial Services. He hosts the What’s Possible? and Financial Autonomy podcasts. Send your questions to: [e-mail]

• Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions. Expert tips on how to save, invest and make the most of your money delivered to your inbox every Sunday. Sign up for our Real Money newsletter.