This document discusses how a couple named Bill and Mary used the equity in their home to purchase an investment property and build wealth over 10 years. They used $250,000 of equity from their $450,000 home to purchase a $425,000 investment property. Through leveraging and tax benefits of property investment, their total wealth grew from $235,274 to $1,189,543 over 10 years while they only contributed $38,017.

1. Wize Up to your best Financial Decision! www.loanwize.com.au

2. Disclaimer The following information is of a general nature and does not take into account your individual circumstances. We recommend obtaining independent financial advice for anyone considering property investment for the first time. You need to have an adequate income to service any proposed debt that you would require when considering a property investment. Rental income and Tax incentives are considered by most lenders when assessing your ability to borrow. I am happy to meet you for a discussion on your borrowing capacity if you are considering property investment.

3. What are you looking for? Don’t you wish it was easy to be pointed in the “right” direction?

4. What is Gearing? Borrowing to buy an Investment to increase the return on your original Investment

5. Their current residence is worth $450,000 They have a mortgage of $200,000 So the equity in their home is $250,000 How ‘Bill and Mary’ used equity and investment to build wealth Bill earns $80,000 full time Mary earns $30,000 part time Their combined income is $110,000 They want to use their earnings and their home equity to build a wealth base. They don’t have a lot of spare cash for the deposit or purchase costs. The equity in their home is as good as cash as far as the bank is concerned. They choose to buy a new home because their accountant advises that new homes usually have better capital growth, less maintenance costs and more tax deductions than an existing home.

6. They chose a four bedroom home - it’s an ideal executive rental with four generous bedrooms and double lock up garage … … and they chose an allotment - Lot 49, Birdwood Sanctuary Estate They have completed a PIA (property investment analysis) based on their personal circumstances – seen in the previous slide – and they proceed as follows:

7. The new investment property, including land, costs $425,000 (The deposit comes from equity in their present home ) They pay a nominal cash deposit ($5,000) Stamp duty and conveyancing costs come to $14,310 (will be closer to $7,500 as house and land) The loan set-up costs are (will be closer to $1,000) $5,426 Their total loan for the new investment property is $439,736 They organize the loan – using their home equity: The loan is structured as ‘interest only’ so that the tax deductions are maximized.

8. At day one, their position is: Their home of residence value is $450,000 Their mortgage is $200,000 So their equity is $250,000 Their investment property value is $425,000 Their mortgage (from previous slide) is $439,726 So their equity is -$14,726 Their combined properties’ value is $875,000 Their refinanced mortgage is $639,726 So their total equity is $235,274 They have refinanced both properties. The loan to value ratio of the combined properties is 73.11% - well within all major banks’ criteria

9. Bill and Mary lodged a standard ATO form * with the tax office and their take-home pay immediately increased pro rata to the tax rebates. How is the investment loan paid? The greater part of their loan repayments are now met by the tenant and government tax rebates. The tax office contributes $162 The tenant contributes $417 Bill & Mary pay $127 (they will pay less in subsequent years as rents increase). on a weekly basis: * PAYG Withholding Variation Application

10. on a weekly basis - Their interest payment is $571 Their general property costs* are $135 The tenant contributes - 59% $417 The tax office contributes – 23% $162 Bill and Mary contribute - 18% $127 Totals $706 $706 * general property costs include agents fees, insurance, vacancies, maintenance etc. The full $135 is not used each week – some is stored in the loan account to be used as costs arise. The investment property loan amount is $439,726 (from previous slides) and interest is calculated at 6.75% per annum.

11. Year 1 Year 10 Bill and Mary’s home of residence is worth $450,000 $844,000 their mortgage is $200,000 $132,000 so their equity is $250,000 $712,000 Their investment property is worth $425,000 $917,543 their mortgage (unchanged) is $439,726 $439,726 so their equity is -$14,726 $477,817 Their combined properties are worth $875,000 $1,761,543 their mortgages are $639,726 $ 572,000 so their total equity (wealth) is $235,274 $1,189,543 In 10 years – for an outlay of only $38,017 (less than the cost of many cars) - Bill and Mary have increased their wealth by $477,817 . Over the 10 years, their outlays came to $38,017 - $5,000 initial cash deposit plus $127 per week reducing to $2 per week by year 10. Ten years later, their position is:

12. At year one the tenant was contributing 59% At year one Bill and Mary were contributing 18% At year one the tax office was contributing 23% During the 10 years, contributions from others increased … and Bill & Mary’s decreased ...

13. Tax benefits decreased as rents increased (some deductions will continue for 20 years) Rents increased Bill and Mary’s contributions decreased … and they may have purchased other investment properties along the way.

14. All calculations in this presentation were derived from a Property Investment Analysis (PIA) computer program, produced by Jan and Ian Somers. For a personalised Property Investment Analysis, please fill out the confidential PIA form Sample of ‘Bill and Mary’ PIA – the full report has about 7 pages

15. Wize Up to your best Financial Decision! www.loanwize.com.au