Meet Jason & Sarah
Jason and Sarah are professionals in their late 30’s, with three children, living in Tauranga.
They purchased their first home in Hamilton 10 years ago, and 5 years ago, they decided a move to be closer to family and the beach was on the cards. An opportunity to build a home for their growing family popped up, and they purchased a brand new property, now worth $915K.
With their existing lending of $495K split into four loans, their equity position is fantastic, and they approached us for some advice around their next move.
Jason works as a project manager, earning $125K, and Sarah is a Legal Executive for a local firm, earning $75K. Their largest expense is $500 / month for childcare of their two youngest.
Setting priorities
As their family grew, the new home they built was starting to burst a little at the seams, and they’re exploring ideas of whether it’s time to upgrade to a slightly larger property to accommodate their needs.
But they’re also keen on investing in a rental property, and came to us for advice around the best way forward to grow their wealth but also ensure their home meets their requirements.
Claire sat down with them for a chat, and the first thing she asked them to do was to clarify and rank their financial goals for the next 1-5 years. That helped her frame up some advice around how to best meet those goals and what they were comfortable giving up in order to achieve it.
After some discussion, their priorities were;
Simplify their lending position, ideally less loans and a slightly better rate
Invest in a rental property within the next two years
Upgrade their home by $200K - $300K within the next 5 years, after their youngest child is off to school and their daycare costs drop off
In clarifying what was most important to them, we set to work.
1. Simplify their lending position
The first obvious option was to seek out some new bank options to simplify their lending and also achieve a better rate in a reducing interest rate environment, saving them $120 / week in repayments, almost as much as their childcare fees!
This meant they had one loan, which was much easier to manage, and they also recieved some cashback for moving their home loan across to a new bank, too.
2. Approval for an investment property
The second was to provide an approval for an investment property in a small Waikato town. We started by establishing their equity position using their current property value less their existing lending.
They can borrow up to 80% of the value of a property they live in. So 80% of $915K is $732K.
Less their existing lending gives us $237K, which effectively becomes the deposit for their new investment property. With a $237K deposit they could buy for up to $790K.
We have predicted they’ll receive $600 / week for their new property.
Serviceability allows for new lending of around $710K, so we obtained an approval from their new bank.
3. But what if they upgraded early?
Jason & Sarah also wanted to understand their position if they decided to sell and upgrade their home early.
Their affordability was around $900K lending for a new property, which would allow them to sell their current home and purchase for between $1.25M - $1.3M.
While this was attractive, they felt that increasing the amount they were paying on their home loan with no rental income to support that increase wasn't quite what they were looking for.
Their Decision
With all the information in front of them, Jason and Sarah decided to proceed with refinancing their lending to a new bank, along with purchasing an investment property locally. They wanted to make the most of their lending position but were happy to remain in their current home for the next 2-3 years.
Sarah also confirmed she would likely have an increase in her salary as part of her work progression, so we knew there would be additional income which would support an increase in lending in the future to upgrade their home.
Is this you? We'd love to help!
When looking at whether you should upgrade your home or purchase an investment property, it’s important to look at all the options before you make a decision, as well as prioritize what’s important to you and your family.
Book a call with one of our advisers who can walk you through a plan and help you understand the next steps!