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Case Study 3 - No deposit
Helen and Simon C
Circumstance
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Age: early 40s
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Profession: Pharmacist and customer relation manager
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Deposit amount: $0
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Consultation: 2017
Situation
Helen and Simon have two children. They live in their own house in Sunnybank Hills which has been half paid off. They purchased an investment property in Brisbane northside in 2016. It is an old house and the property has negative cash flow due to unexpected high maintenance costs. Its valuation has decreased in 2017.
Original need
Looking for a house within the ideal school catchment for their children’s education and to improve their property portfolio.
Scenario comparison
Scenario 1:
Sell the high maintenance investment property, use the funds to purchase a house within the ideal school catchment area. After finding a home they can rent out their current house as an investment property and earn rental income.
Scenario 2:
Restructure all loans of their properties and withdraw their home equity as a deposit towards their ideal home within the school catchment area. Once they move into the new home, rent out the house in Sunnybank Hills to help cover part of the mortgage repayment. Sell the high maintenance investment property to cut loss and reduce their financial stress. Buy another investment property in a better location with higher rental return and growth potential.
Our advice
We recommended Scenario 2. As the couple has strong borrowing capacity, they are able to refinance their current properties and use the equity as a deposit to purchase a property in the school catchment they like. This will not affect their cash flow and they can keep their home in Sunnybank Hills as an investment. This property has good growth potential and rental return due to its favourable location. To improve the performance of their property portfolio, they can sell the bad investment and buy another property with better performance.
Client action
Helen and Simon rented out their home in Sunnybank Hills for $480 per week, purchased a house in Mansfield and settled their children in a good school in the suburb. Meanwhile they purchased a brand new house and land package in Redbank Plains, which was $415,000 in 2017 and settled in 2018.
Further update
Helen and Simon sold their property in Brisbane northside a few years later. They earned a small profit from the sale and were ready to purchase a better investment.
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Result