Estimating John's Borrowing Capacity and Equity Utilization
To determine how John can tap into the $430,000 equity in his caretaker unit before selling his business in December 2025, we reviewed his income, expenses and property details. At age 60, John is self-employed, earns stable revenue from his management rights business, and owns a $770,000 caretaker unit with a $340,000 mortgage outstanding.
Borrowing Capacity Overview
- Annual Income: $156,000 (per 2023 Notice of Assessment)
- Net Monthly Income: ~$9,417
- Current Monthly Outgoings:
- Mortgage repayments: $2,200
- Business loan: $600
- Credit card (5% of $2,000 limit): $100
- Living expenses: $2,500
- Available Serviceability: ~$3,900/month (≈30% of gross income)
- Likely Investment Loan: $450,000–$550,000 over 15 years at 6.25% p.a., using a 9.25% assessment rate
Accessing Home Equity
John’s lender could advance up to 80% LVR on the caretaker unit (valued at $770,000):
- 80% LVR Drawdown: $616,000 – $340,000 = $276,000 (no LMI)
- Up to 90% LVR: Potentially $353,000 (with LMI and lender approval)
Investment Property Strategy
By combining equity with savings, John can secure a strong deposit:
- Equity available: $276,000
- Savings: $30,000
- Total Deposit: $306,000
Targeting properties priced $750,000–$850,000 could yield $30,000–$42,500 p.a. at a 4–5% rental return, further supporting serviceability.
Recommended Action Plan
- Repay the $28,000 Business Loan – Use savings to eliminate the $600/month commitment and boost borrowing power.
- Establish an Equity Loan or Line of Credit – Unlock $276,000 for the investment deposit.
- Optimize Loan Structure – Choose a variable-rate facility with an offset account and interest-only repayments to preserve cash flow until December 2025.
- Engage a Specialist Broker – Work with a mortgage broker experienced with self-employed borrowers to secure the best outcome.
Post-Sale Positioning (December 2025)
- Sale proceeds of $550,000 from the business can reduce debt or fund further investments.
- Selling the caretaker unit could net ~ $430,000 equity for reinvestment or debt reduction.
- Obtain tailored tax advice to manage CGT on both the business and property disposals.
By acting now, John can leverage his existing equity to acquire a high-yield investment and be ideally positioned for portfolio growth after his business sale.
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