How to retire early by unlocking the equity in your backyard
I was talking to a friend of mine the other day, Gehan Coelho. Gehan is a Financial Advisor and is a Principal Consultant at Investment & Financial Partners , a financial planning firm in West Perth.
Before I share the topic of our discussion, which is why I am writing this post, I should point out that as part of our process at Unlock Your Block we advise clients it is essential that they seek financial advice on any implications ( Centrelink, tax, options for surplus funds etc) on the sale of their new block. We would recommend Gehan because he is a good sounding board, very knowledgeable and is really focused on getting the best outcomes for his clients.
Anyway, as we chatted and worked through the numbers, he highlighted how it would be completely feasible for clients to retire early if they successfully unlocked the value in their property. In fact he showed me how it was entirely possible that our clients could not only retire early, but also earn a sustainable income!
LET’S TAKE A CLOSER LOOK
The best way to explain is to work through a simple example. For privacy reasons let’s use a fictional couple, Harry and Sally, who live in Vic Park.
Harry is aged 62 and works full time for a window manufacturer. His annual salary is $60,000.
Sally is 60 and works part time for a small business near home, helping out in the office a couple of days a week and earns $25,000 per annum.
The couple have lived in the same home for over 40 years, having raised a family of 2 kids and seen the youngest move out a few years ago. They were always prudent with money and paid off their home about 10 years ago.
The home is on a big block in Vic Park- close to the café strip and is in a very sought after location. They recently had the property valued at $1.2m.
Given they have both been working for some 40 years, they have a healthy combined super balance of $500,000. In addition, they also have $125,000 in a high interest bank account.
To finish painting the picture the couple spend about $60,000 a year on living expenses. Their combined net income is $71,596.
TAKING THE FIRST STEP TO FINANCIAL FREEDOM
The couple had heard about Unlock Your Block from a friend and given they wanted to go travelling around Australia while they were still young enough to enjoy it, they liked the idea of freeing up some funds to pay for the trip.
Given Harry is not getting any younger; he was also very keen on the idea of not having to tend to the large backyard anymore!
So after some discussion they decided to engage our services and unlock the value in their property.
Unlock Your Block got straight to work and we took care of the sub-division process, creating a new lot in the backyard, allowing Harry and Sally to continue living in their existing home on the now front block.
After a successful marketing campaign we helped Harry and Sally sell the newly created rear block and after all of their expenses*, they were able to bank $520,000.
HOW TO RETIRE EARLY AND EARN A SUSTAINABLE INCOME!
So Harry and Sally were now in a great position, they have $645,000 in the bank and after speaking with a Financial Advisor they decided to contribute $600,000 into their superannuation** and convert the supers to a pension.
Given they already had $500,000 in super- their super balance has now grown to $1,145,000. Again, following financial advice, they invested in an income focused portfolio generating 5.50% pa.
The result: an income of $62,975 pa TAX FREE!
Given that they can now meet their living costs via this income stream, Harry can now opt to go to part time work to line up with Sally’s hours and their travel plans can happen sooner rather than later!
Further, as they should have significant surplus income, they could look at tax effective strategies to build up their super funds like salary sacrificing their wages into super.
IF THEY CAN DO IT, SO CAN YOU!
Of course every situation is different. But for the sake of a phone call, it is worth having a chat to assess your options.
If you want to get in touch, you can contact me here.
*Captial gains tax could apply and is assessed on an individual basis.
** There are restrictions and limits on contributions into super- so best to speak with a Financial Advisor before making any contributions.
A financial adviser or registered tax agent can help you determine whether you could benefit from this strategy.