Planning, equity, leverage and some good luck can work wonders, write Ben Nash. (Source: Ben Nash\/Getty) <\/p>\n
Jess and Aaron were doing all the things you\u2019re told are smart to do with money<\/a>. They were in their late 30\u2019s, had two young kids, and a lovely home in Melbourne\u2019s inner North<\/a>. They\u2019d pumped their savings into their mortgage, saved a bit on the side each month, and avoided silly debt. On paper, it all looked fine.<\/p>\n But it didn\u2019t feel fine.<\/p>\n They were watching friends buy investments and talk about making money from markets while they felt like they were stuck in neutral. Big tax bills kept landing, savings growth was slow, and every month the property and share market moved, they felt like they were falling further behind.<\/p>\n Jess and Aaron weren\u2019t reckless or lazy. But they were sick of doing the \u2018right things\u2019 and getting average results. They didn\u2019t want to gamble, they wanted a path forward that would actually make a difference.<\/p>\n RELATED<\/p>\n We spent some time talking through their situation and the opportunities, and helped them map out the big picture – and the problem became clear. The missing piece wasn\u2019t willpower, it was strategy.<\/p>\n Their home had increased in value quite a bit since they bought it, and that growth had created equity. Equity is a powerful tool, but only if you use it well.<\/p>\n So they decided on a couple of shifts that were simple to understand and boring enough to stick with. They restructured their bank accounts to make it easier to save more, and set up a debt recycling strategy that would help them convert their home mortgage into deductible investment debt over time.<\/p>\n But the big shift was around putting their equity to work by buying a quality investment property. This one strategy had tax benefits, leverage benefits, and was the single thing that made the biggest difference to both their financial trajectory. It was also the thing that made the biggest difference to how they were feeling about their money.<\/p>\n Jess and Aaron targeted an investment property at $1,000,000. Because they had a lot of equity in their home, they were able to borrow the full deposit and purchase costs. Because these funds were being used to invest, the interest costs were immediately deductible.<\/p>\n At a 6% mortgage interest rate, this meant around $65,000 each year in interest costs, with another ~$10k on top for ongoing property costs like strata and maintenance. On the other side of the equation, they were expecting rental income of around $37,000 each year.<\/p>\n The result was that the cashflow of their investment was $38,000 each year. But to soften the blow, they received a tax kicker from the ATO because this $38k was fully tax deductible at their marginal tax rate of 39%, meaning the after tax cost to them was only $23,180 each year.<\/p>\n Now funding an investment at ~$2k each month is a substantial cost, but in return, Jess and Aaron got the benefit of the property increasing in value over time. Based on the long term Australian property market growth rate of 7% yearly, this means their asset was likely to add around $70k in year one.<\/p>\n That means that even after the holding costs of ~$23k, Jess and Aaron would still be ahead by around $47,000 each year. A result much stronger than what they could ever get by paying off their mortgage or even cranking a share portfolio.<\/p>\n Fast forward six months and they had a good tenant installed, the actual numbers around rent came in slightly better than planned, tax deductions were flowing – and importantly they were seeing growth uplift on their property.<\/p>\n It\u2019s important to note that any time you borrow money, this comes with risk that\u2019s important to manage – and you want this managed from day one. Jess and Aaron ring fenced the different moving parts of their strategy so a surprise wouldn\u2019t cause them a serious problem.<\/p>\n They set aside a buffer in cash to cover three months of their property shortfall, with a view to building this up to six months over time. As part of their plan, they stress tested the property cash flow at higher interest rates, assumed some rental vacancy, and set a budget for maintenance.<\/p>\n They also reviewed their insurances, including income cover and landlord protection. They also set a recurring appointment in their calendars every three months to review the numbers and refine the plan, so things didn\u2019t drift.<\/p>\n Risk management doesn\u2019t create a return, but it does protect the return you\u2019re trying to earn.<\/p>\n What changed, and how to copy it <\/p>\n The biggest shift for Jess and Aaron was momentum, combined with strategy. Before they planned, everything was in a holding pattern. After planning, their equity had a job, they were using the rules to their advantage, risk was managed, and investments were actually cutting their tax drag.<\/p>\n For this couple (like many others), seeing the numbers move made it easier to stay disciplined.<\/p>\n They stuck to rules they could live with – not perfect timing or investments that shoot the lights out. But quality assets, the right loan structures, and patience for compounding to do the heavy lifting.<\/p>\n If you want to mirror these results, start with clarity on your current position, and your ability to invest – specifically what investments fit with your situation. If you\u2019re looking at an option and the numbers make you nervous, shrink the target or build your buffer further.<\/p>\n From there, check on your borrowing capacity, keep your loan structure clean, and review your moves at least twice a year to ensure you stay on point.<\/p>\n Jess and Aaron didn\u2019t get rich overnight. They used a simple, structured plan to put their existing money to work – with some support to build the confidence needed to take action.<\/p>\n Their tactics aren’t for everyone. To make these work you need stable income, a clear plan, buffers, and the mindset to follow through. And if these tactics don\u2019t suit you, there will be a set that does.<\/p>\n There are a lot of different ways to be right with your money, the key is finding the path that\u2019s right for you – and when you do, the results are worth it.<\/p>\n Ben Nash is a finance expert commentator, podcaster, financial adviser and founder of Pivot Wealth<\/a>. Ben\u2019s new book, Virgin Millionaire; the step-by-step guide to your first million and beyond is out now on Amazon<\/a> | Audiobook<\/a>.<\/p>\n Tapping your home equity to benefit from leverage could help your over position grow. (Source: Getty) \u00b7 Getty Images <\/p>\n