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Financing Your First Home and Investing for the Future

A Yield Client Case Study

First Home Super Saver Scheme contributes an additional $7,807 to home deposit through tax savings

Confidence to purchase a home at their ideal price point of $1,000,000

Concessional Super Contributions provide an estimated tax saving of $5,364 p.a.

Possibilities to retire 1 – 3 years sooner through different investment strategies

Financing your first home is an incredibly important part of your financial journey and can be stressful. 

 

Having proper financial advice around your options for buying your first home and what is the best method for you to grow your retirement nest egg can be done effectively and holistically through the work of a financial planner.

 

Introduction – Financing Your First Home 

Our clients, a couple in their early 30s, wanted to understand their ability to purchase their first home through the sale of one of their parents’ properties with the couple receiving 75% of the proceeds. 

 

They wanted to know if financing their first home could be done with their existing funds, or if selling this property in Ballarat would be required. 

 

Through engaging with Yield to analyse their choices around purchasing their first home, this couple also sought strategies to invest in their path towards retirement through wealth-building solutions. 

 

Overview – Options and Strategies to Finance Your First Home 

We modelled this couples’ ability to purchase a home in two years time at their allocated price of 850K – 1.1 million, and if they would need to sell the Ballarat property to contribute to their deposit. 

 

Our analysis focused on their ability to service the debt and from a cashflow and capital perspective. 

 

We identified that strategies such as the First Home Super Saver Scheme could boost their home deposit and save through the tax effective structure that is super, saving an additional $7,807. 

 

With this sound property planning, this couple wanted to know what their investment options were around how they can plan and grow their nest egg for retirement. 

 

We evaluated that they had three options to invest for retirement, which allowed for one of the partners to retire early 

 

They are: 

  • Focusing solely on debt reduction and holding surplus funds in cash, could put them in a position to retire at 60 years of age.  
  • Investing all surplus cashflow into a joint diversified portfolio of managed funds personally after debt is repaid could see them retiring at age 59 years of age
  • Maximising concessional contributions each year and then investing surplus cashflow could position them to retire as early as 57 years of age

These concessional contributions to Superannuation could also provide them with an estimated tax saving of $5,364 p.a in the ideal tax structure of superannuation, making their money work for them with our financial planning solutions.  

Outcomes

In our analysis, we advised that without selling the Ballarat property, they would not have the sufficient funds to place down on a house deposit and would have to defer the purchase. 

 

Selling the property and gaining 75% of the net proceeds would achieve the clients’ goals of buying a property at their ideal price point and in their specified time frame of two years.  

 

We also recommended that the property is purchased under a Joint Tenancy Agreement which is the most simple and effective way to structure ownership between spouses, with estate planning advantages. 

 

Our advice was worked around the couple taking out the total debt amount of $880,000 on a Principal & Interest basis, which is viewed as being able to be managed by the couple from their cashflow and capital perspective and handled by their ongoing repayments. 

 

The investment strategies to grow the couples nest egg that we identified were maximising concessional super contributions, but only after the house deposit had been paid in order to buy their ideal first home. 

 

Yield Financial Planning always advises and projects for various investment strategies to show our clients the different possibilities and options they have when it comes to investing their money for their future. 

 

We projected that after this couple had purchased their property, they will have sufficient cashflow and cash in the bank to engage in wealth building exercises which will include maximising concessional contributions each year. 

 

Several further opportunities exist for this couple as time goes on that will further accelerate their wealth creation and position them for an earlier retirement. 

  • Current – Simply doing nothing and purchasing their primary residence at their desired price point ($1.1m + associated purchasing costs)
  • Recommended – Same Scenario however our recommendations overlaid which include utilising First Home Super Saver Scheme (FHSSS) + Maxing Concessional contributions in the future + Investing Surplus cashflow.

Please Note: You can see that their Net Financial Position (Financial Assets less Debt) dramatically reduces during FY23. This is because they’ve purchase a primary residence and as a result have taken on non-deductible debt which reduces their Net financial assets to purchase a lifestyle asset (Primary Residence) which is not considered a financial asset.

Important Note
Produced with our client’s permission. The content of this case study has been based on a real-life client. Any information provided here is general advice only and does not consider your objectives, financial situation or needs. This information should not be taken as comprehensive and does not constitute legal or financial advice. You should seek legal, financial or other professional advice before relying on any content. Yield Financial Planning is not responsible to you or anyone else for any loss suffered in connection with the use of this information. Information is only current at the date initially published.

 

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