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Case Study 2 - Family
Rita & Tim Y
Circumstance
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Age: early 30s
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Profession: Car salesperson and full-time housewife
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Deposit amount: $55,000
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Consultation: 2017
Situation
They are a family with three children, living in a small 3 bedroom townhouse, which has been fully paid off. The family only has a single income and the wife is looking for a job to improve their standard of life. They have a small deposit and borrowing capacity.
Original need
They have been looking to purchase a house in the surrounding suburbs to live in.
Scenario comparison
Scenario 1:
Sell the current townhouse for approximately $450,000 (market price) and use the funds to purchase a house. They can apply for a home loan if the house is over $500,000.
Scenario 2:
They can rent a bigger house in the location they like and rent out the current townhouse to receive rental income to cover the rent of the bigger house. They can then withdraw their home equity of the townhouse as a deposit for a future property purchase.
Our advice
We recommended Scenario 2. After comparing their cash flow between renting and owning a bigger house, it was obvious that renting is a more affordable and flexible option for them. By doing so, they can avoid having mortgage stress for a new home and can focus on building their investment portfolio. In the future when Rita has a job, the couple will have a stronger borrowing capacity and can consider purchasing their 2nd investment property.
Client action
Rita and Tim decided to stay where they were and purchased a house and land package as an investment in Thornlands in 2017 (house settled in 2018). Purchase price $580,000, they paid a 20% deposit of $116,000 using the equity from their townhouse without using any of their savings, which did not affect their cash flow.
Further update
A few months after the first property settled, Rita and Tim found a beautiful rental house they loved and moved in as tenants. They then rented out their townhouse for $450 per week. Rita also found a full-time job and with their stronger borrowing power purchased a one bedroom plus one study apartment with 5% rental return in late 2018.
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Result​