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Case Study: Buy Your Home; or Rent and Invest

Sandy immigrated to Australia as an executive in the finance sector, George was an IT professional. They had a bright future together. They planned to marry at the end of the year and hoped to buy their own home in Sydney. Is rentvesting and option for them?

However, an OK two-bed apartment without a view would cost about $1M. They needed a whopping $900,000 loan.

The repayment figures were overwhelming. They needed to pay $45,000 to meet interest costs each year plus $30,000 to make the loan repayments. They actually needed $75,000 each year for 30 years assuming the interest rates remained exactly the same.

The killer was that by the time they made their final repayment they would be 70 years of age. And then it hit them that they would actually need to pay it off sooner if they wanted to retire at 65.

The Solution

This set them on a journey and they came to us, we identified their key investment questions:

1. Could they buy an investment property to the value of $1M and have the tenants pay to hold it while it increased in value?

2. Could they use the money created to buy their own home that they liked in the future?

Yes, we knew we could provide them with a great opportunity.

We designed, and documented, a personal investment strategy around two dual occupancy properties in QLD.

Both properties had:

● Strong Capital growth potential based on economic drivers back ed by Government policy;

● Strong rental appeal and returns from two incomes per property; and,

● Were in the rising phase of the property cycle.

Sandy and George are currently on track to double their money in 15 years. With increasing strength in the local economic drivers, they could do this in less time. Having invested in property and seen the results they have achieved. They are now saving for another deposit to purchase a third property.

Does rentvesting sound like a solution for you? If you’re ready to get started now, then click here to book a complimentary 1-on-1 planning call about this strategy.
Schedule Appointment

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You’ll speak to a member of our expert advisors’ team and talk about how you can experience your own breakthrough with this strategy.

For those that like the strategy and the numbers:

Exit Strategy Optimisation: Current capital growth 3-5%. Increasing demand, above average population growth forecast for 15+ years. One property could be strata titled immediately. Conservatively estimated at $88,000 1.

Holding Strategy Optimisation: Gross rental returns of 6.5%. With the additional capacity to meet future increases in interest rates.

Entry Strategy Optimisation: Two areas chosen for diversity of economic drivers. This reduced the risk and increases options if they needed to sell at any point.

Outcome:

Estimated $220 pw in additional income from the rent or $11,400pa.

Estimated $30,000 in depreciation in first year, giving $9,750 as a tax return.

Income:

Total of $21,150 in first year. This additional income can support repayment of the loans.

Costs:

Actual rental cost of $34,000 pa compared to required $75,000 pa if they had bought their own home. This gives them discretion on an additional $41,000pa after tax. Much of this can be directed to paying down their mortgages, saving for a new home, or the deposit for another investment property.

Capital Growth: Capital growth is the increase in value of the property. It is not evenly distributed over the property cycle. Different areas rise and fall at different rates. The investment property suburbs had an average capital growth rate of 6% in the last 12 months and so did their target suburb for their future home.

Total: They have an additional $21,000 to direct to future investments; and, discretion in spending or investing over $41,000 in after tax income. They have a capital uplift that can be realised at their exit strategy by strata titling one property. Plus their investment properties and their ideal home suburb tracked at the same rate of capital growth over the last 12 months.

1: Assumption about the increase in value is conservative. The median price of existing properties in this suburb was $280,000 in November 2014. We have simply assumed the market value of the strata titled properties as 2 x $280,000 = $560,000. They paid $462,000 and had strata costs of $10,000. This realises $88,000.

In reality, new properties are selling for more. Typical new 3 bedroom properties were priced at about $427,000 on similar sized land to half their block. It is very likely their properties were worth more than $280,000 for the 3-bed side and maybe about this price for the 2-bed side. This would create additional profit.

2: This illustration is a compilation of the investment portfolios of several clients and is provided to demonstrate the pathways these couples have taken to arrive at their destination through renting and investing.

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