Download Group 15 SOA Letter - EFN 421 Assignment PDF

TitleGroup 15 SOA Letter - EFN 421 Assignment
File Size110.8 KB
Total Pages7
Table of Contents
                            The scope of this advice
Your goals and objectives
Risk Profile Assessment – “Conservative to Moderate”
Document Text Contents
Page 4

What is our advice?

Short-term goal: Relocation to Perth with an appropriate strategy to buy/sell/rent.

Your short-term goal is to move to Perth for career opportunities. Your initial plans are
to live there for approx 5 years. To view your home affordability analysis, please refer to
Excel Spreadsheet tab "Home Affordability Analysis".

• Option 1 - Retain House in Brisbane and rent a property in Perth.
You current home mortgage is approx $266,000 with monthly repayments of
$1,898. Should you rent out this property, we calculate you would receive approx
$2,800/mth rent (before agent costs @ 10%), resulting in a positively geared
investment property. We calculate this would provide surplus rental income of
approx $422/mth after agent costs, which could be utilized to partially offset a
rental property in Perth.

• Option 2 - Rent Brisbane House and buy a similar size/style property in
Perth (median house price $460,000).
Similarly, should you rent your Brisbane property, in addition to surplus rental
income of $422/mth, your combined wages would afford the purchase of a
residence to the value of circa $500,000. Not only would this increase your
current asset position, there may be tax concessions/advantages in your favour
(we recommend you consult a qualified tax accountant to confirm any tax
concessions applicable).

• Option 3 - Sell Brisbane House and buy in Perth.
Should you prefer not to take on the added risk of converting your Brisbane
residence to an investment property, your have the option of selling your
Brisbane property, pay out the existing debt and utilize this equity to purchase a
new home in Perth.

Your South Brisbane house has steadily increased to approx $700,000 in value, which
provides you with a substantial source of untapped equity. Apart from your
superannuation, this is your primary asset. It is anticipated that your house value will
increase at an average rate of 7% pa over the long-term (based upon 10 year historical

In Brisbane, the property market has shown little growth in the past two years, with
some properties evidencing a retraction in values. This trend has also been experienced
in the Perth property market. Subsequently, we are currently witnessing a "buyers
market" rather than a "sellers market". This means that selling your property in this
market could see you make a reduced capital gain.

Consequently, we believe the most suitable option for you, given your current financial
position, is to rent your Brisbane property and initially rent a property in Perth. Should
your term of stay in Perth extend beyond 12 months, you could then investigate
purchasing a residence in Perth.


Page 5

What is our advice?

Medium-term goal: Children’s private school education

Please refer to the "Education Strategy" tab within the Excel worksheet for our
calculations. We have calculated that you will require approx $25,000/child pa for
private tutorage in today's dollars.

• Option 1 - Investing surplus cash flow of $3,489/mth into a Term
Deposit/Managed Equity Fund.

Should you invest your surplus cash flow into a term deposit, with monthly
interest re-deposited for compound growth, we calculate you will have sufficient
funds to afford the education of your children at a well-respected high school
(Perth/Brisbane based).

Should you deposit your surplus cash flow into a Managed Equity Fund (given you
lack time to manage direct equity investments), historic evidence indicates you
may achieve higher returns than a term deposit, however, there would be some
additional risk.

• Option 2 - Depositing surplus cash flow of $3,489/mth into home
loan/investment loan with the view to redrawing at a later stage.

Alternatively, you have the option of depositing your surplus cash flow into debt
reduction, with the view to redraw at a later stage. Costs associated with this
option are normally low i.e. under $500.


Over the past couple of years we have witnessed volatility within the Australian
Stock Market. However, recent market research indicates that due to renewed
global stability, we are potentially on the upswing of the equity cycle.
Subsequently, we see a prime opportunity to invest in the equity market over the
medium to long term.

Due to your risk adverse appetite, we would recommend a managed fund, within
a balanced fund. The advantages are two fold – (1) we think that you will achieve
a higher rate of return than a term deposit and, (2) we feel that you would be
diversifying your portfolio to have property plus equity investments.


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