How to save $98,000 in interest and reduce your mortgage by 14 years
Updated: Aug 18, 2022
Here at Real Estate Investment Finance there's nothing we love more than being able to share recent client success stories.
Recently our CEO, David Chehade, went online to share this story and it’s generated a lot of interest from our REIF community.
Last year we had a client approach us who was interested in buying an investment property. We were able to successfully secure them a rare dual occupancy investment property in a high growth corridor of South-East Queensland.
When they initially purchased this investment option, they were able to lock it in at a very affordable price of $515,000. At the time of their completed build, a few weeks ago, this property had increased $150,000 in value. Though, that wasn’t the only success that came from that!
Our client experienced a $150,000 increase in less than 12 months on their investment property
An investment property with passive income from day one
When we first worked with this client we knew that the dual occupancy investment option would produce a decent passive income. Since re-evaluating their property value and the rental market, we were stoked to discover that their property will be producing a higher rate of passive income.
In fact, we learnt it’ll be bringing in a weekly rental income of $700. In a year, this client will be making $36,000 to add to their property investment strategy (before costs).
As an investor, you'll incur costs. It’s just a matter of whether your property is cash-flow positive or negative. In the case of this investment property, it’s cash-flow positive. This means that even after costs are accounted for, the investor will still have cash left over (therefore putting cash in their pocket).
In this property investment strategy, we calculated some conservative costs around how much it will cost to operate the home each year. This will help uncover the cash-flow that the property investor will be left with after costs are accounted for.
Estimated costs to run a dual occupancy investment property:
After these costs are accounted for, the investor is still cash-flow positive of $7,000.
Don’t go anywhere yet! That’s not all….
When you invest in a new property, you can claim a very importance expense with the ATO. This expense is called depreciation.
On this property, we calculated that in one year it would depreciate by about $15,000 in value. Of that, our client will run at about an $8,000 loss. Since the ATO allows you to claim about 30% of that loss they’ll be able to recoup about $2,400 from investment property tax deductions. This means that the investor in mention will be able to add $9,400 a year to their pocket.
Applying that income to your home loan
We ran some numbers with this client. They wanted a property investment strategy that would put them in a better financial position. An REIF finance specialist reviewed the most suitable mortgage interest rates on the market to ensure they weren’t paying any more in interest than they needed to.
Additionally, we strategized with the client and found that if they put that $9,400 into an offset account every year that they’d be successful in reducing their mortgage repayments by $98,000. Additionally, they would be able to reduce their loan term by a whopping 14 years.
We call that working smarter
At REIF, we call that working smarter. If you’re looking to put yourself in a better financial predicament and invest in property that is cash-flow positive from day one, reach out. We would love the opportunity to sit down with you and get a holistic understanding of your goals to make this happen.
To start a conversation, give us a call on 1300 130 932.
Alternatively, you can click here to book an Investment Consultation.
For more information
We explore this case study in further detail in this video. Watch it to learn more!