It’s a future that Hometree helps a diverse range of clients become a part of.
The property industry in Australia is a great place for entry-level investors to learn about growing their wealth, with opportunities to purchase and hold providing safe paths to stable financial futures.
John and Emma are aged 51 and 50. They have a $300K mortgage, two children at university and $120K in super. John earns $80K per annum and Emma earns $45K.
After hitting 50, John and Emma both realised that retirement was getting closer and it was time they started looking at how they were going to get their mortgage repaid by age 65 and somehow boost their retirement savings.
As they started to really look at their financial position they realised very quickly that if they continued on the path they were on there was no way they would be retiring at age 65.
Hometree sat down with John and Emma to examine their situation and developed a strategy. John and Emma built their home four years ago and ended up with a $300K mortgage. Because of their combined incomes their children receive virtually no support from the government while they are studying at university and even with the children working part time they still need assistance from John and Emma to live. They have no ability to save any money or make extra payments on the mortgage to reduce the term to 15 years (to be paid off by their retirement age).
Their home is valued at $600K which means there is $300K equity. Hometree suggested that John and Emma meet with Burbs Property to discuss acquiring an investment property. Burbs Property have placed many properties for Hometree’s clients in the past that have all been cash flow positive, and in most cases the rents have exceeded expectation.
Burbs Property showed John and Emma a dual-key property on the Sunshine Coast located within 1km of the Sunshine Coast University. On one side there are three bedrooms, two bathrooms and a double lock up garage and on the other there are two bedrooms, one bathroom and a single carport. From the street it looks like one house but it’s actually two, and as a result attracts two lots of rent.
Hometree calculated that with the correct loan structure, the property is $85 per week cash flow positive. Hometree then received the quantity surveyor’s report and were able to calculate what additional tax savings will be generated. After analysis, the property will generate an additional $205 per week – cash that can be deposited directly into John and Emma’s personal mortgage.
With an interest rate of 5.09% p.a. and a remaining loan term of 21 years, John and Emma are paying $485 per week on their personal mortgage. The additional $205 per week will help them pay their mortgage off in 12 years, hitting their goal and saving them $71,343 in interest.
Ecstatic with this result, John and Emma then went on to implement the rest of the recommendations outlined by Hometree and now have clear direction on their superannuation, have insurance in place and their wills have been updated.
Steve and Jane Brown have an SMSF with $200,000 in cash and $50,000 in other assets. They would like to buy an investment property within their SMSF. The property, however, is worth $400,000 which means the SMSF doesn’t have enough money to cover the full cost of the purchases.
In this instance, the SMSF trustees can apply for an SMSF Property Loan. To do this, the Browns started by seeking independent financial and legal advice to ensure it was appropriate for their SMSF to borrow money and purchase an investment property.
Once they have received this advice they began establishing the trust structures required for the loan, ensuring they comply with the relevant superannuation laws. The loan would then need to be taken out by the SMSF trustee.
The Browns also needed to set up a separate holding trust, which will be the legal owner of the property. To purchase the property, the SMSF can use the $200,000 it has available in cash and borrow the remaining funds plus other associated costs, using the investment property as security for the loan.
The holding trust becomes the legal owner of the property, while the SMSF is the beneficial owner and receives the rental income. The rent (and/or other income from the SMSF, such as investment income and super contributions) can be used by the SMSF trustee to make the loan repayments.
It’s important to note that the loan is a limited recourse loan. In the event of a default, the lender has recourse to the property security and any additional security provided by the guarantors. The Lender will not have recourse to any other assets held in the Brown’s SMSF.
Once the loan is repaid the legal ownership of the property can be transferred to the Brown’s SMSF.
Michael and Belinda Smith are aged 35 and 31. They have a $350K mortgage and two children who are in primary school. Michael earns $120K per annum and Belinda works part time and earns $45K.
A good friend of Michael and Belinda’s, John, has just found out that he has an inoperable tumor and has been given 18 months to live. John has since revealed that he doesn’t have adequate insurances in place and is really worried that his family won’t be OK after he is gone. He is urging all his friends to review their insurances. So Michael and Belinda have come to Hometree to review their existing insurances and make sure they have adequate cover.
After discussion with Hometree the Smiths have decided that they would like to cover:
In the event of death – Life Insurance, which would: Repay their mortgage Leave a lump sum to cover education expenses.
In the event either of them are Totally and Permanently Disabled – TPD Insurance, which would: Repay their mortgage Leave a lump sum to cover education expenses Leave a lump sum to give the surviving spouse some time to grieve and also help cover the costs to raise the children Have a lump sum of $200K to cover medical expenses and home modifications if required.
In the event of a serious illness or accident: Trauma Insurance – which would pay a lump sum in the event many serious illnesses, and Income Protection Insurance – this insurance will provide 75% of current income if unable to work due to sickness or injury until a full recovery is made.
The Life and TPD Insurance will be placed inside their super so the super can cover the cost of the premiums. In order to ensure that the premiums don’t impact their retirement savings Michael and Belinda have organized for their respective employers to salary sacrifice the equivalent of the premiums. This also means they will pay less income tax.
Michael will pay the Income Protection premiums personally as he can claim these as a tax deduction. Unfortunately because Belinda only works 18 hours per week and most of this is from home, she is unable to apply for income protection Insurance.
They have both applied for Trauma insurance.
Once the levels of Insurance and strategy were agreed upon, Hometree ran the clients’ details through the independent research software (Risk Researcher) and were able to obtain excellent quality cover at a competitive price.
Michael and Belinda successfully applied for the insurances. They then went to the lawyer recommended by Hometree and were able to design a Will to ensure that in the event of either or both of their untimely deaths, the surviving members of the family would be well looked after. They also put in place Enduring Powers of Attorney at the same time.
Satisfied with the strategic approach to the recommendations and relieved they now have insurances and Wills in place, Michael and Belinda then went on to implement the rest of the recommendations outlined by Hometree and now have a long term strategy to achieve their goals.