Case study: Property advice is crucial

Investopoly

In my regular weekly episode, I talk about the theories, methodologies, and principles associated with investing. These case study episodes aim to share how the application of our approach to formulating advice has worked in a real-life situation.

Case study: Property advice is crucial

How wealth advice, property advice, and lifestyle goals are often very interrelated.

Approached us for advice in 2019. Male-owned new-build apartment with $200k of equity. Female-owned house and land package with $260k of equity in it. They had high incomes, but also spent a lot.

Neither of their properties would be considered investment grade.

Advice: sell both, and invest $460k of equity in the highest quality house they can afford. Retain as much cash as possible. Don’t worry about building. Use a buyers’ agent.

In July 2020, they bought a home for $2m. They borrowed around $1.9m = forced savings. Used family guarantee (mum’s ppty) so that they could retain cash.

Their property is now worth $3.5m. $1.5m tax-free gain.

It was a 10+ year strategy, and we couldn’t have anticipated that they’d be so well off after only 3 years, but it’s a good example.

What can we learn?

Well-rounded advice is very important.

• A financial advisor wouldn't have the knowledge and experience to appreciate what their next best move was.
• Mortgage brokers don't have the full picture.
• Often, buyers and agents will be too influenced by the clients’ desires.

It's only with the benefit of hindsight do you know how valuable it can be to stretch yourself. Being too conservative can be costly.

Cannot underestimate the tremendous lifestyle impact of upgrading the home.

A forced savings strategy is very good for people who are spendthrifts.

Structuring the mortgage currently was important to (1) ensure he maintained a buffer and (2) took advantage of low rates – we staggered expiries.

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