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Saturday, November 28, 2020

Get ‘unstuck’ with Invest+RetireTM

It’s a common problem – it was before COVID-19 and it will likely be an even greater problem after COVID-19: Mum and Dad cannot afford the retirement home that is best for them. A home where they can have a full sense of community, be with like-minded people, and ideally in a fresh clean country atmosphere, all of which is on offer at Summerfield Estate in Braidwood.

Mum and Dad deserve the best, and of course their children want to help them. The issue is, the purchase of a home in many retirement villages comes with hefty exit fees, you might not own the land and the home freehold cannot be financed effectively. Often Mum and Dad, or the in-laws, have some cash, just not enough to secure what they really want. On the other hand, the adult children may have good jobs and are earning good income but may not have substantial cash ready to be able to help out. Everyone is stuck!

So, how do you get ‘unstuck’ for everybody’s benefit? Could the parents and children work together, where the children have a cash flow positive investment and the parents the home they want? It is important to remember with financial matters to consult your financial adviser about your individual circumstances.

Let’s take a look at an example scenario using a home at Summerfield Estate, with an average purchase price of $600,000 for a three-bedroom, two-bathroom, two-car villa, which is fully disabled-compliant if required. Being freehold, with no exit fees and no sale restrictions, the home can be borrowed against just like any other property. However, Mum and Dad (let’s call them Beth and John), do not have a regular servicing income that’s high enough to become a borrower, but they do have around $350,000 in savings and super, and receive the Age Pension. This is where the Invest+RetireTM framework could be adapted for their personal circumstance. Their son and daughter-in-law (Scott and Miriam), both 48, have good jobs, earning a combined income of $130,000. Scott and Miriam own their home but have a mortgage and have saved up $100,000. They also have their super.

This could be a win-win scenario, with these basic steps:

Step 1: Beth and John visit their financial planner or adviser for advice on their personal circumstances.  

Step 2: Scott and Miriam call their mortgage broker who runs the numbers and says they can get a 70% loan and borrow $440,000 at a current interest rate of 3%. They will need a $190,000 cash deposit for the purchase.

Step 3: Scott and Miriam request BMT Depreciation Consultants to provide a full new property depreciation analysis.

Step 4: Scott and Miriam check the numbers: $170 per-week cash flow positive and at a capital growth of 4%, it has over a 10% per-annum compound annualised return.

Step 5: Beth and John lend Scott and Miriam, with a formal loan agreement, an amount of $130,000.

Step 6: Scott and Miriam provide $60,000 of their $100,000 savings, without touching the equity in their home. They now have the $190,000 cash to settle the freehold Summerfield villa and all proceeds for the contract, valuation and settlement. 

Step 7: Beth and John pay $500 per-week rent to Scott and Miriam.

Give Jane from Summerfield Estate a call on 1300 737 970; she can put you in touch with financial planners and mortgage brokers who understand the Invest+RetireTM model.

Visit the Summerfield website here.

This feature was created in partnership with Summerfield. For more information on sponsored partnerships, click here.