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Disclaimer• The following information is of a general nature and does not take

into account your individual circumstances. • We recommend obtaining independent financial advice for anyone

considering property investment for the first time.• You need to have an adequate income to service any proposed debt

that you would require when considering a property investment. • Rental income and Tax incentives are considered by most lenders

when assessing your ability to borrow. • I am happy to meet you for a discussion on your borrowing capacity

if you are considering property investment.

What are you looking for?

Don’t you wish it was easy to be pointed in the “right” direction?

What is Gearing?Borrowing to buy an Investment

to increase the return on your original Investment

Their current residence is worth $450,000

They have a mortgage of $200,000

So the equity in their home is $250,000

How ‘Bill and Mary’ used equity and investment to build wealth

Bill earns $80,000 full

time

Mary earns $30,000

part time

Their combined income is $110,000

They want to use their earnings and their home equity to build a wealth base.

They don’t have a lot of spare cash for the deposit or purchase costs.

The equity in their home is as good as cash as far as the bank is concerned.

They choose to buy a new home because their accountant advises that new homes usually have better capital growth, less maintenance costs and more tax deductions than an existing home.

They chose a four bedroom home - it’s an ideal executive rental with four generous bedrooms and double lock up garage …

… and they chose an allotment - Lot 49, Birdwood Sanctuary Estate

They have completed a PIA (property investment analysis) based on their personal circumstances – seen in the previous slide – and they proceed as follows:

The new investment property, including land, costs$425,000(The deposit comes from equity in their present home)

They pay a nominal cash deposit ($5,000)

Stamp duty and conveyancing costs come to $14,310

(will be closer to $7,500 as house and land)

The loan set-up costs are (will be closer to $1,000) $5,426

Their total loan for the new investment property is $439,736

The new investment property, including land, costs$425,000(The deposit comes from equity in their present home)

They pay a nominal cash deposit ($5,000)

Stamp duty and conveyancing costs come to $14,310

(will be closer to $7,500 as house and land)

The loan set-up costs are (will be closer to $1,000) $5,426

Their total loan for the new investment property is $439,736

They organize the loan – using their home equity:

The loan is structured as ‘interest only’ so that the tax deductions are maximized.

At day one, their position is:

Their home of residence value is $450,000Their mortgage is $200,000So their equity is $250,000

Their investment property value is $425,000Their mortgage (from previous slide) is $439,726So their equity is -$14,726

Their combined properties’ value is $875,000Their refinanced mortgage is $639,726So their total equity is $235,274

Their home of residence value is $450,000Their mortgage is $200,000So their equity is $250,000

Their investment property value is $425,000Their mortgage (from previous slide) is $439,726So their equity is -$14,726

Their combined properties’ value is $875,000Their refinanced mortgage is $639,726So their total equity is $235,274

They have refinanced both properties.

The loan to value ratio of the combined properties is 73.11% - well within all major banks’ criteria

Bill and Mary lodged a standard ATO form * with the tax office and their take-home pay immediately increased pro rata to the tax rebates.

How is the investment loan paid?

The greater part of their loan repayments are now met by the tenant and government tax rebates.

The tax office contributes $162

The tenant contributes $417

Bill & Mary pay $127 (they will pay less in subsequent years as rents increase).

on a weekly basis:

* PAYG Withholding Variation Application

on a weekly basis -

Their interest payment is $571Their general property costs* are $135

The tenant contributes - 59% $417The tax office contributes – 23% $162Bill and Mary contribute - 18% $127

Totals $706 $706

on a weekly basis -

Their interest payment is $571Their general property costs* are $135

The tenant contributes - 59% $417The tax office contributes – 23% $162Bill and Mary contribute - 18% $127

Totals $706 $706

* general property costs include agents fees, insurance, vacancies, maintenance etc. The full $135 is not used each week – some is stored in the loan account to be used as costs arise.

The investment property loan amount is $439,726 (from previous slides) and interest is calculated at 6.75% per annum.

Year 1 Year 10

Bill and Mary’s home of residence is worth $450,000$844,000their mortgage is $200,000$132,000so their equity is $250,000$712,000

Their investment property is worth $425,000$917,543their mortgage (unchanged) is $439,726

$439,726so their equity is -$14,726$477,817

Their combined properties are worth $875,000

$1,761,543 their mortgages are$639,726 $ 572,000 so their total equity (wealth) is $235,274 $1,189,543

In 10 years – for an outlay of only $38,017 (less than the cost of many cars) - Bill and Mary have increased their wealth by $477,817.

Over the 10 years, their outlays came to $38,017 - $5,000 initial cash deposit plus $127 per week reducing to $2 per week by year 10.

Ten years later, their position is:

At year one the tenant was contributing 59%

At year one Bill and Mary were contributing 18%

At year one the tax office was contributing 23%

During the 10 years, contributions from others increased …and Bill & Mary’s decreased ...

Tax benefits decreased as rents increased (some deductions will continue for 20 years)

Rents increased

Bill and Mary’s contributions decreased

… and they may have purchased other investment properties along the way.

All calculations in this presentation were derived from a Property Investment Analysis (PIA) computer program, produced by Jan and Ian Somers.

For a personalised Property Investment Analysis, please fill out the confidential PIA form

Sample of ‘Bill and Mary’ PIA – the full report has about 7 pages

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