Over the last couple of months we’ve been asking many of you for feedback on our content, and this week I’m pumped to announce we’re launching a new format for our weekly newsletter.
We’ve stripped out some of the elements to highlight the things we feel will be most helpful and valuable to help you make smarter choices with your money. We’re also streamlining our weekly emails and ditching the weekly podcast and blog drops to condense all our best content into one note.
If during the week you’re finding yourself a little lost and thirsting for more money education, you can always jump onto the Pivot Website | Podcast | and socials TikTok | Linkedin | Youtube | Facebook | Instagram
And we’d love your feedback and any suggestions, you can hit us up by replying here.
Smart Money upside #94
Here we unpack the numbers from a recent client we helped, what they were doing with their money when they came to see us, what they chose to do as a result of going through the financial planning process, and the financial impact and upside we helped them achieve. To chat about how to get these sorts of results, you can book an intro chat with us here.
Couple, mid 40’s; household income ~ $340k; total assets ~ $2.5m; savings ~ $40k annually.
Doubt in the current situation, lack of understanding about their risk tolerance and risk profile and no clear plan to follow.
What they wanted from us / the advice process
Getting a better return on their investments and reducing their annual tax.
What success looks like for them
A solid financial plan saves them money in the short term and is set up in an optimal way to grow their wealth long term.
What money strategy they were following before we went through the planning process
Saving money in their offset account.
What money strategy they chose to pursue from our planning work
Rolling their superannuation into a more appropriate fund to meet their goals, buying an investment property, reformulating their banking structure to automate and simplify things and an RSU vesting plan to manage tax.
Key benefits of going through the process
Education on their finances and a key understanding of what is possible and what is not possible for them.
Value of advice after all advice fees year one: $47k
Year 20 upside after advice fees: $4m
If this story resonates you can book an intro call with us here.
Video of the week
If you want to invest and actually earn money, you’ve got to choose investments that generate an income. This week I did a deep dive into the opportunity investing can create to build wealth – even for beginners. Check it out here.
Learn the tips, hacks, and strategies to help you level up your money game. Pods released last week:
Money news in human words; tax rates soar, US rate slowdown, & property predictions
How to adult: Financing 101 [Live event recording]
Free online money education to help you invest smarter and create a life not limited by money:
- Be smarter with tax in 2023 – December 07, 12pm
- Plan smarter with money in 2023 – December 14, 12pm
- Buy your first home in 2023 – December 15, 12pm
- Master your money mindset in 2023 – January 11, 12pm
- Get money smart in 2023 – January 25, 2023, 12pm
- Buy property smarter in 2023 – February 22, 2023, 12pm
- Build a second income investing in 2023 – March 8, 12pm
- Invest with property equity in 2023 – March 22, 2023, 12pm
Blog of the week: How to use your property equity to make $10m
There are very few ‘free rides’ when it comes to your money, but investing with equity is as close as you can get.
Starting with the basics, property equity is simply the difference between the value of your property and how much you owe on your mortgage. For example, if your property is worth $500k and you owe $300k, your equity is $200k ($500k – $300k).
In Australia, the banks will typically lend you up to 80% of the value of a property that you can then use to invest. You need to be able to service the mortgage, i.e. have a stable income and buy a property that will give you enough rent to cover the ongoing mortgage costs. As long as the numbers stack up, banks are generally comfortable to lend.
When you own property, over time your property will increase in value, meaning your equity will also be increasing. You can then borrow against this equity and use the money for further investing, most commonly with the property.
How equity release works
There is a bit of complexity here, but it’s also pretty straightforward when you know how the rules work. The short version is that as your property value and equity increase, the banks will get more comfortable lending you more money against the increasing value of your property.
When you buy your first property you generally need to have a cash deposit. But once you have property equity, the banks will generally lend you money against your equity that you can use as the deposit for your next property.
This way you could buy your second and any subsequent properties without using any cash deposit or putting any of your own money down. You’re essentially using the bank’s money to invest, growing your assets and wealth faster. This is a big part of why I believe that property is the fastest pathway to serious wealth.
I’ve outlined an example below showing how property equity will grow based on a $500,000 property purchased with a 20% deposit, using the long-term property return of 6.3%, showing how much money you could potentially borrow at any point as the value of your property increases over time.
If you can manage your risk well, it’s possible to go beyond this and amplify your results even further.
So what’s stopping you?
You can see from the futures above that using property equity to invest is a powerful way to grow your wealth. We know this is possible. We know the bank’s rules and when they’re comfortable to lend.
But here’s the thing – increasing your debt levels can be pretty scary. Particularly in the interest rate environment we’re facing today, it’s natural for you to be fearful about taking the leap to purchase property.
This fear is driven from the potential for you to make a mistake that costs you a heap of money. This fear is completely natural, and exists to protect you. Playing it safe and sticking to where you’re at feels comfortable, and is nice and safe.
But ‘safe’ won’t make you money. And while fear can stop you from making a mistake, if you let it, fear will stop you from playing a bigger game.
The power of a property plan
Buying property comes with risk. But the thing is, most of these risks can be managed and minimised – if you take the right approach.
The key to managing risk well is to map out a solid plan. One where you know you’re ready for rising interest rates. Where you have a good property that will grow and deliver the results you’re expecting. And where you know you’re able to invest through property and live the lifestyle you want without making drastic sacrifices.
When you take the time to map out your plan, the why, how, and when of the ideal property strategy for you will become clear. You’ll be able to set things up in a way you’re confident your risk is managed, and give yourself total confidence to take action.
Property investing isn’t for everyone, and using borrowing to invest does increase your risk and should be carefully considered. The right move at the wrong time is still the wrong move. But, property investing with equity is something that has the potential to build serious wealth and accelerate how quickly you get ahead with your money.
In the current environment, there’s a lot of fear out there around the property. But in my view, there’s also a lot of opportunity – if you’re smart about how you set up the ideal property plan for you.
To your success,
PS: Pivot Wealth exists to help people invest smarter to create a life not limited by money. If you want help to make your next steps easier, you can book a 10 minute, no BS chat with us here.
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