[Case Study] Maximise Equity From Home To Purchase 1st Investment Property (tax effectively) | Property Twins™
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In: Property Investors0

Our client, Mark is a corporate professional working for the Government. He had previously built his home, which involved buying land and building his first home in a new estate. He knew he had some equity, savings and shares, however he wasn’t sure how to go on about utilising his resources most effectively, so he could purchase his first investment property, and be set up to expand his portfolio.

His goal was to not max out his borrowing capacity. Instead he wanted to buy something which was within his budget, gave him cash flow, and also allowed him to keep control of some of his savings in line with his ‘risk profile’. His goal was to also potentially be able to fund his 2nd investment property down the track.

About Mark: A young corporate professional, working for the Government. His income is approx. $120,000.

Where he was and what he wanted to achieve:

Mark wanted to take charge of his financial future by purchasing an investment property, as well as set himself up for future investment properties. Whilst Mark is a young professional, he wanted to establish himself and have investment properties working for him whilst he continued paying off his home.

Additionally, many people keep watching the property market, and take role of an ‘observer’ whilst properties they could afford at one point in time are no longer affordable, thereby missing out on significant growth in a short period of time – and in hindsight they wish they had acted sooner.

Mark no longer wanted to be an ‘observer’ as just watching the market was not going to improve his situation.

As such, he wanted to take control of his future and have a step-by-step finance strategy he could execute whilst saving tax and paying off his home fast.

Proposed Solution with a Tailored Plan:

  1. Maximise the equity Mark can extract from his home, which can be put towards the next property
  2. Debt recycle savings and share investments to pay down non-tax-deductible loan in the first instance, and converting it into a tax-deductible loan (subject to Mark’s tax accountant advice)
  3. Ensuring he reduced his home loan interest rate so the reverse compounding effect of paying off his home loan is expedited
  4. Ensuring the loans are set up correctly, so that Mark can prioritise paying off his home before paying off his investment property (which will have tax benefits subject to his tax accountant’s advice)
  5. Strategise and mapping out purchase of Mark’s 1st investment property, and be set up to purchase another investment property

Results: Mark accessed equity in his home, and debt recycled savings to be ready to fund his first investment property

Home Equity Release approx.: $101,000, and debt recycled about $43,000 of savings/shares by paying down non-deductible loan, giving Mark $144,000 for his next investment property (properties)

Investment Property 1 Purchase Price: $465,000 at 88% Loan to Value Ratio (LVR) plus Lenders Mortgage Insurance, renting for at least $440 per week

Total Property Ownership including Home: $1.145 million approx.

Growth Projection: If the properties owned grow by a conservative 5% per annum, Mark will be adding on average $57k to his wealth per year, compounding year on year. In 9 years, this will be more than $600k in growth due to the compounding affect.

Property doesn’t grow in a straight-line basis. Mark’s portfolio may grow more in one year and less in another.

What’s Next for Mark?

Property Twins team will continue monitoring the value of Mark’s portfolio to see opportunities around equity release and further investment properties which will be possible for him as he pays down his non-deductible loan and creates borrowing capacity.

Of the $144,000 investment funds available, he only used c. $75k toward his first investment property, and therefore still has c. $69k funds available. He has considered buying a cheaper property in a regional town as well, which he may implement when he is ready to.

Mark’s current home loan structure is strategically set up to allow him to pay off his home loan faster and maintaining tax effectiveness of his 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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