OPINION: One of the sad realizations for many people stuck for months in the Covid-19 lockdown is that they no longer want to be with their partner.
There are already companies that specialize in solving the emotional and financial issues of separation.
What about asset allocation? What about lifestyle change?
People shouldn’t have to give up their whole lives when they make a big change, but sadly that’s what often happens (especially to women) when a long marriage ends. In most cases, it was the women who put their careers on hold or did not progress as they could have because they took on more family and childcare responsibilities.
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I see people in this situation all the time. I see the panic and yes, even the fear, when a house or a roof above their heads could be lost.
I have also experienced this feeling. As a single mother after a divorce, I worried about my future and that of my son. I managed to secure our future with investment properties.
Many people’s instinct is to put whatever money they get at the end of the relationship into a new family home, but the expense can add pressure. A real estate investment strategy can be a way to create security with less financial stress.
Perhaps the demographic with the most to gain from thinking more laterally about real estate investing is those who leave a marriage and share their assets, including – in most cases – the family home.
For many people in this category, buying a house similar to the one they had in marriage is difficult. Either they will have to compromise on the type of property (a unit rather than a three- or four-bedroom family home) or the location, possibly buying in a more affordable but unfamiliar suburb.
For these folks, rather than jumping straight into a mortgage with maybe half of their previous household income, why not rent and invest some of the settlement in a rental property?
With this strategy, people can still live in the area and type of home they prefer, while moving forward financially and compensating for any financial decline they may have suffered as a result of the relationship breakdown.
The money they made from selling the family home and/or dividing up other common property can be invested in one, two, or even three new investment properties. For example, for a property of $600,000, a deposit of $120,000 is sufficient.
Income from three investment properties could potentially cover all expenses (including mortgage costs), in addition to contributing to their own rent. Then, in the future, they could leverage those rentals to buy the home they really want, or enjoy substantial passive income, and still have money in the bank for a rainy day.
For those leaving the family home or retiring, the freed up cash can be invested in new or off-plan investment properties, which only require a 20% down payment (thus protecting the initial investment). People at this stage of life can enjoy passive income while all property expenses, including the mortgage, are covered by the strong rental market.
A client recently moved to a property in Hamilton in the low $600,000s, and our projection calculated a rental income of $600 per week. In fact, this rental generates $710 per week, which puts him in an even better position.
A second client purchased the plans six months ago, and the developer is now selling the same properties for $75,000 more than the client paid. And a third client, who bought an investment property in Hamilton six years ago for $599,000, is now selling it for $1.4 million.
Nikki Connors is a registered financial adviser and founder of Propellor Property Investments, Private Property Club, PropellorFirst, Metropolis Design and Metropolis Property Management in Auckland and Christchurch. This article is his personal opinion based on his experience in the industry.