Our clients, Peter & Sandy are a hardworking couple. They owned two properties – their home and an investment property. They were confused how people are able to move from one property to the next and the one after that, whilst saving tax and minimising risk…
They knew they had some equity to do something, however they weren’t sure how much and what it could do.
They just wanted to get started somewhere. And whilst they couldn’t see how they will build a portfolio of multiple properties, they wanted to take the first step to start their journey.
About Peter & Sandy: Couple in their late 30’s with two dependents. Sandy works in finance and Peter is an IT manager. Their combined family income is approx. $200,000.
Where they were and what they wanted to achieve:
Peter & Sandy wanted to take charge of their financial future. They were stuck as their lender had set their two property loans as cross collateralised. The lender they were with also wouldn’t allow them to tap into the equity.
Cross collateralisation means the lender held control of the equity. Even if they tried to refinance one property or tried to access equity from one of the properties, the lender would value both properties and assess their serviceability every single time.
There was no way they could move forward with the current structures. This would be a large opportunity cost over the long term.
Proposed Solution with a Tailored Plan:
- Re-structure and remove the cross collateralisation between the properties (as the properties were cross collateralised, this had to be coordinated simultaneously)
- Maximise the equity they can extract from their home and investment property which can be put towards the next property
- Ensuring they get a better interest rate so the reverse compounding effect of paying off their home loan is expedited.
- Analysis of various repayment types that will help Peter & Sandy so they prioritise paying off their home before an investment property (which will have tax benefits subject to their tax accountant’s advice)
- Strategise and mapping out the purchase of the 2nd investment property
Results: Peter & Sandy are set to purchase their second investment property
Home Equity Release approx.: $125,000 + Existing Savings of $42,000 approx.
Investment Property 2 Purchase Price: $600,000 at 88% Loan to Value Ratio (LVR) plus Lenders Mortgage Insurance, renting for at least $420 per week
Total Property Ownership including Home: $2.05 million approx.
Growth Projection: If the properties owned grow by a conservative 5% per annum, Peter & Sandy will be adding on average $128k to their wealth per year, compounding year on year. In 10 years, this will be more than $1.28m in net assets due to the compounding affect.
Property doesn’t grow in a straight-line basis. Peter & Sandy’s portfolio may grow more in one year and less in another.
What’s Next for Peter & Sandy?
Property Twins team will continue monitoring the value of Peter & Sandy’s portfolio to see opportunities around equity release and further investment properties which are possible for them, given the planned set up of their existing properties.
Peter & Sandy already have a plan to purchase their 4th investment property as well, as they save more and build equity in their home.
Peter & Sandy’s current home loan structure is strategically set up to allow them to pay off their home loan faster and maintaining tax effectiveness of their investment loans.
As you work through your own goals, dreams and aspirations, you can see that acquiring one and more investment properties is about having a ‘step by step’ strategy laid out to enable you to keep moving forward.
This is possible by having a ‘step by step’ plan tailored to your circumstances, established upfront by the Property Twins to enable you to keep moving forward.
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