| Are you part of a double income no kids (DINK) | | | | interest rate of the loan. At 6%, the rental amount |
| household? If so, your wealth and financial | | | | will cover the loan payment but after additional |
| considerations are different. Consider this case study | | | | expenses, such as insurance, improvements, etc., the |
| for determining if an investment property may be | | | | Joneses will experience a loss of $5,000, or $100 per |
| the best option to grow your portfolio and avoid | | | | week. |
| facing excessive taxes. | | | | This may not seem to be the best investment - until |
| Case Study: the Joneses | | | | you take into account the tax considerations. |
| A typical DINK couple, Mr. and Mrs. Jones are both | | | | Depreciation on the property would be approximately |
| employed in professional fields. They earn $250,000 | | | | $9,000 yearly, giving the Joneses a total loss of |
| per year and own their own home, which is valued at | | | | $14,000 that could be deducted from their tax liability. |
| $750,000. Their debt is currently $200,000 and the | | | | Since their earnings put them in the 38% tax |
| Joneses wish to expand their financial portfolio by | | | | bracket, this allows a tax refund of $5,300, making it |
| investing in rental property. | | | | a reasonable investment; the real estate enjoys high |
| They are encountering two particular issues in relation | | | | capital growth potential whilst allowing for a |
| to property investments: what type of real estate to | | | | substantial tax refund. |
| purchase and how to structure the ownership to | | | | Ownership Structure |
| result in the least amount of taxes owed on the | | | | How should the Joneses structure the ownership of |
| investment. | | | | their investment property? They should establish an |
| The Best Property for the Joneses to Purchase | | | | LAQC structure with equal shares in the company |
| First, Mr. and Mrs. Jones should be very confident | | | | (assuming their incomes are comparable). A family |
| about their income earning potential for the future. If | | | | trust including their residence will protect their assets. |
| either of them feels their job is not secure, then this | | | | The loan on the investment real estate should be |
| would not be a good time to allocate funds to | | | | spread across two lenders so that their home is not |
| investment. | | | | at risk for the entire amount; $100,000 secured by |
| With a reasonable expectation that their incomes will | | | | their residence and the additional $400,000 secured |
| remain stable or increase, they could certainly afford | | | | by the rental property itself. |
| to buy a property worth $500,000 that allows for | | | | The above scenario allows the Joneses to purchase a |
| high capital growth and moderate yield. The property | | | | high capital growth investment that does not |
| could easily rent for $625 weekly and give them a | | | | negatively impact their cash flow - basically buying |
| 6.5% yield. | | | | real estate at no cost. In the end, this is a very |
| This does not take into account, however, the | | | | sound investment and perfect for DINKs. |