Interested in property investment but not sure how to move forward? We can help! Here’s 2 recent case studies of clients we have worked with to achieve their property investment dreams.
Case Study 1
A married couple, Dianne and Ben, owed $200,000 on their home worth $500,000. They were both working full time and have 2 children, one of which is in child care. Dianne and Ben wanted to purchase an investment property, and maximise their tax deductions by borrowing the full amount against the new property.
Generally the easiest way to structure this deal is to simply cross collateralise both properties and then borrow the total amount plus costs on the new property. However if you plan on having more than two properties, this is not an ideal situation, as every time you need to adjust your loan on either property – valuations have to be completed on both properties.
Compounding the problem for Dianne and Ben, is that by using cross collateralisation, they would not be able to demonstrate enough income to the bank to service the new loan of $321,180.
The solution here was to take out a second loan against their existing property with the original lender for $100,000. This loan would then be used as the deposit for the new property with a little left over to be used as a buffer. The loan on the new property was then applied for with a different lender. The new lender has a different way of assessing borrowing capacity which allowed them to borrow up to 80% against the new place.
The result was a very satisfied client with well-structured loans. The secondary loan against their home is now tax deductible (providing they only use it for investment) and the full amount of the new loan on their investment property will also be deductible.
Their structure would look like this:
|New loan 80%||$248,000|
Clients contributed $73,000 out of their $100,000 loan, leaving them with a buffer of $27,000 for future investment / repairs /maintenance etc. When their current child who is in full time child care starts school, D and B will have around $1,000 extra they are able to put towards their existing loans or towards a new property.
Case Study 2
Bruce and Sarah were looking to buy their first investment property. I sat down with them and we looked at lenders and repayments BUT most importantly the structure of the loans and ‘safety nets’. I explained how we if you are buying property the importance of having it done the safest way possible.
Specifically we always look to using two lender so we don’t put their own home at risk and discussed the importance of having cash left over for the ‘just in-cases’ and risk covers in place for anything than can and sometime does go wrong.
We also spoke about the emotional ride when buying their first investment and all the things we had in place to counter act any of these potential problems.
We assisted with locating a $650,000 property with rental income of $780 per week.
We structured everything so they actually were now ahead by an extra $90.00 per week! We directed this extra income into the loan on their home meaning they would be mortgage free just over two years earlier and save over $31,000 in interest payments. This is on top of any price growth in the property over the coming years.
Once their equity increases in the two homes they will be looking to buy their next one.