Baby Boomer Case Study
Intelligent Property Investment
Future Estate eBooks Series: Baby Boomer Case Study
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CLIENT PROFILE The Baby Boomer generation represents the traditionally largest demographic group in Australian society and has a large representation in SMSF. Born between 1947 and 1965, this generation represents the largest pool of retirement savings in Australia. The table below summarises a hypothetical client profile of this generation.
Born 1947 – 1965 Retired or approaching retirement, often deferred due to GFC $500k assumed SMSF balance of savings Moderate risk profile Seeking to recover losses from GFC and build retirement assets Property offers a means to grow asset base and retirement income Property portfolio is usually geared with positive cash flow
Future Estate offers a wide range of investment alternatives suitable to Baby Boomers with varying risk profiles and investment options including:
Investment Options Manufactured Equity Product (MEP)
Preferred Income Units (PIU)
Pre-Sale Purchase
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Suitable Investors
Investment Horizon
Seeking to build equity in investment property within SMSF and to grow a substantial portfolio over time
Typically 2 years with private ownership at completion
Seeking debt-like investment with enhanced interest-rate-like returns
Typically 2 years to completion then generally 5 – 10+ years
Seeking direct property ownership with no equity risk during construction
Typically 5 – 10 years
Future Estate eBooks Series: Baby Boomer Case Study
mep at a glance Manufactured Equity Products (MEPs) are suited to Baby Boomers seeking to grow a substantial investment property portfolio within their SMSF.
Key Term What is it?
Target Returns
Investment Term
Details Property managed fund (equity)
n
Private property ownership on building completion
n
Typically return circa 15% of the property aquired e.g. $75,000 on a $500,000 property
n
During development of the project
n
Generally around 2 years
n
Investment Amount
n
Property Price
n
Geographical Focus
Market Focus
Typically $100,000 – $150,000 equity
Generally $400,000 – $600,000 Australian capital cities
n
Key infrastructure and employment hubs of mining regions
n
Affordable high quality investment property
n
High yields, low rental vacancy and broadly accessible price point
n
Using our reinvestment program, the investor can build a $6.3m positively geared investment portfolio over 10 years, all from an upfront investment of $125,000 and an annual contribution of $10,000 for 10 years.
Future Estate eBooks Series: Baby Boomer Case Study
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ASSUMPTIONS Conservative Case Assumptions Terms
Details
Comments
Investor contribution
$125, 000
Initial contribution. $10,000 p.a. thereafter
Investment term
10 years
Suitable for Baby Boomers
Property value
$500, 000
Generally $400,000 – $600,000, 4% capital growth
Stamp duty MEP investment amount
4% $125 ,000
Percentage of property value Returned to the investor at project completition
MEP investment term
2 years
Typical length of an MEP project
Tax rate on MEP return
16.5%
Based on SMSF tax rate
Rental income Ownership costs Depreciation tax shield Initial loan amount Implied LVR Loan term Loan interest rate
$600 $7,000 $10, 000 $375, 000 75% 30 years 6.5%
Per week. Assumed to grow at 4% p.a. Including maintenance, body corporate and other costs. Assumed to increase at 5% p.a. Tax benefits of depreciation expense Property value minus MEP investment amount Loan amount divided by property value Principal and Interest repayments Annual rate based on current lending market condition
In this example, we illustrate how an investor can build a substantial positively geared over a 10-year period. The investor makes an initial contribution of $125,000 and a further annual contribution of $10,000 for 10 years. Under the MEP Reinvestment Program, it is assumed that any end-of-year cash surplus is reinvested into as many MEPs as permitted by the cash balance.
Variation Assumptions Low Case
Conservative Case
Target Case
MEP Return
5%
10%
15%
Capital Gain
2%
4%
6%
Rental Growth
2%
4%
6%
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Future Estate eBooks Series: Baby Boomer Case Study
PORTFOLIO GROWTH MEP Portfolio Growth (Year 1-10)
MEP under construction Completed property
1
2
Source: Future Estate
3
4
5
6
7
8
9
10
Years
Property portfolio comprising 12 properties over a 10-year period.
Future Estate eBooks Series: Baby Boomer Case Study
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PORTFOLIO VALUE Portfolio Value $7,000,000
$6,000,000
Portfolio Value
$5,000,000
$4,000,000
$3,000,000
$2,000,000
$1,000,000
$0
1
2
3
4
5
6
7
8
9
10
Years Conservative
Low
Source: Future Estate
Target
Assuming Target MEP returns are achieved and each MEP takes 2 years to complete, an investor can build a $6.3m portfolio over 10 years.
Portfolio Implied Equity $4,000,000 $3,500,000
Implied Equity
$3,000,000 $2,500,000 $2,000,000 $1,500,000 $1,000,000 $500,000
$0
1
2
3
4
5
6
7
8
9
10
Years Source: Future Estate
Low
Conservative
Target
Our MEP Reinvestment Program can assist Baby Boomers in building substantial equity within 10 years.
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Future Estate eBooks Series: Baby Boomer Case Study
net CASH FLOW Portfolio Net Cash Flow $35,000
$30,000
Net Cash Flow
$25,000
$20,000
$15,000
$10,000
$5,000
$0
1
2
3
4
5
6
7
8
9
10
Years Source: Future Estate
Low
Conservative
Target
Our MEP Reinvestment Program can assist in generating positive cash flow for Baby Boomers during the transition to retirement.
Future Estate eBooks Series: Baby Boomer Case Study
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If you would like more information about us and our investment products, simply call, email or visit.
1300 future (388873) info@futureestate.com.au www.futureestate.com.au @futureestate future.estate future estate
Copyright Š Future Estate Group Pty Ltd 2012
This document contains general information and does not contain personal advice or financial product advice. This information has been prepared without taking account of your objectives, financial situation or needs. Accordingly, before acting on this information and making financial decisions, you should consider whether this information is appropriate for you and are recommended to seek independent financial, investment, tax and/or legal advice having regard to your own objectives, financial situation and needs. This information may contain material provided to Future Estate Group Pty Ltd by third parties. While such material is published with necessary permission, Future Estate Group Pty Ltd and its related entities accept no responsibility for the accuracy or completeness of this information, nor endorses it. To the maximum extent permitted by law, Future Estate Group Pty and its related entities disclaim all liability for any loss, costs or damage which arises in connection with the use or reliance on the information and material contained in this document. Any forward looking statements and estimates are provided as a general guide only and should not be relied upon as an indication or guarantee of future performance. Furthermore, past performance is not a true indicator of future performance. Any past performance information in this document has been given for illustrative purposes only and should not be relied upon as an indication of future performance.
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Future Estate eBooks Series: Baby Boomer Case Study