Wealth Creation

Situation

Judy and Dave are a married couple who are already in a good financial position. Having worked very hard all their lives and both earning a salary between $75,000 to $80,000, they have paid off the mortgage on their family home – valued at approximately $850,000.

In addition to this, Judy and Dave have two investment properties, on which they still owe a combined amount of $350,000. Judy and Dave have also acquired $25,000 in shares; $150,000 in superannuation and $50,000 in cash savings.

Goals

Judy and Dave’s short-term goals are to invest in another investment property and complete some renovations on the family home. They would like to pay off the mortgage on their two investment properties.

After analysing Judy and Dave’s financial position and goals, despite their good financial position, they would not be able to achieve these goals on their current path. They will have a shortfall of $1,035,000 based on retiring at the age of 65.

Solution

Judy and Dave are already comfortable with investment properties and this was certainly going to be the best investment vehicle for them.

Using the equity in their home, they were able to purchase a brand new third investment property.

The investment property specialists selected a brand new property in Pimpama, due to the area having a high rental return and low vacancy rates. The increased cash flow was able to be redirected into the mortgages and the projection. The capital growth for Pimpama had also been astronomical in the last year. Due to the home being brand new, the couple were entitled to increased deductions and greater tax benefits.

The increased cash flow and tax benefits from the third investment property was fed back into the mortgages, allowing the couple to pay off their debt much sooner.

Outcome

In 15 years, Judy and Dave will have an investment equity of $2,262,000 and will have gained financial control of all of their assets. By purchasing a new property, greater tax efficiency was introduced and savings of $127,243 were made over 15 years.

This case study shows that although you already might be in a good financial position, you can always create more wealth using the right investment vehicle and strategy. It is also a good idea evaluate at your goals to ensure they are achievable rather than making assumptions.