Real client story. Names and some details have been changed to protect our clients’ privacy. Figures were estimates at the time of advice and outcomes are not guaranteed. Every situation is different.
Dan and Dani found us through a local community group on Facebook, where they got chatting with Andre. Money was clearly on their minds. Dan, 26, runs his own landscaping business, and Dani, 30, works as a client manager in the beauty and wellness industry. They owned their first home in Melbourne’s west and were thinking about starting a family. The question that brought them in was how to set themselves up before moving from two incomes to one.
What they wanted
They had two priorities. They wanted to pay down their home loan efficiently, and they wanted to start building a property portfolio to help fund their retirement. They were unsure how much debt they could carry on one income, and with the market running hot in their part of Melbourne, they were worried about being priced out if they waited too long.
What we found
At their Financial Discovery Session, it became clear they had more going for them than they realised. They had built equity in their home and had savings sitting in an offset account. They also understood their cash flow well. We introduced them to a cash flow coaching tool to streamline the family budget and make sure there would be enough surplus to support an investment without squeezing their lifestyle. Then we worked through our nine-point Wealth Effect Property Strategy, which covers purpose, loan to value ratio, rental yield, the buying entity, price, property type and class, location, negative gearing and depreciation.
Lending was the hard part. They were planning around one income, and lenders had tightened investment lending after APRA introduced a 10% benchmark on investor lending growth in 2014. Banks were assessing loans at serviceability rates averaging around 7.4% at the time. They also needed a lender that would release their equity before they had a contract of sale on a new property.
What we did
We found a lender that would release the equity in their home into a transaction account. That made paying deposits simple, and they would only pay interest on the money once they used it. Depending on the lender, this structure can also attract aggregate lending discounts. Combined with a multi-bank strategy to improve serviceability, it lifted their purchase price to over $750,000, taking them out of direct competition with first home buyers. All up, they could afford an investment property of up to $790,000 including stamp duty and other costs.
For the search, we suggested an area 5 to 10 km from the city ring, such as Melbourne’s inner west, where planning rules allowed for greater housing density and population growth was putting pressure on land values. We also encouraged them to look close to schools, rail and bus routes.
The result
They bought a three-bedroom house on a good-sized block for $650,000, a little under the local median house price of $685,000. The area had recorded capital growth of 9.17% over the previous 12 months, with a median weekly rent of $550. A property report at the time suggested the trend could continue, although past growth is no guarantee of future growth.
Six months after buying, and nine months after their first session with us, the property’s estimated value had risen by $36,221. On the projections at the time, this strategy alone was expected to help them pay off their home loan about ten years sooner. Dan and Dani are now working toward retiring in their mid-50s with a target passive income of $120,000 a year after tax, and the foundations are in place to keep building for themselves and their children.
What we took from it
Young couples often think investing has to wait until everything else is sorted. For Dan and Dani, the best window was before the family arrived, while they still had two incomes and lenders would look at them favourably. The right lending structure mattered as much as the right property. Getting both in place early gave them a head start that can compound for decades.
If any part of this story sounds familiar, book a free 15-minute chat and we can talk it through. You can also read more client stories.
General advice only. This story describes advice given to particular clients at a particular time. It does not take into account your objectives, financial situation or needs, so consider whether it is appropriate for you and read our Financial Services Guide before acting.
Wealth Effect Group (CAR 424768) and Andre Dirckze (AR 395157) are Authorised Representatives of Boston Reed Pty Ltd, ABN 89 091 004 885, AFSL 225738.