Clarence's story

1. Where Clarence started

   Four older houses on large blocks, each renting for $550 a week. Ageing stock, rising maintenance and Clarence doing much of the work himself. At 55, he wanted his time back for travel, not trades.

   Rent

   $550/wk

   Debt

   $550,000

   Interest at 7%

   $38,500/yr

   Net position

   -$9,900/yr

2. The turning point

   Clarence was wary of taking on more debt just to rebuild old houses. A property adviser introduced him to purpose built co-living, and his broker helped him work out how to add a higher yielding property without overstretching.

3. The strategy

   The plan discussed was to sell one of the four properties, clearing its debt and freeing up cash. Combined with existing savings, that would give him a total cash position, with most of it going toward the new build and some kept in reserve.

   Debt cleared by sale

   $600,000

   Cash freed by sale

   $300,000

   Total cash position

   $450,000

   Buffer kept aside

   $100,000

4. The build concept

   The concept discussed was knocking down the old house on one remaining site and replacing it with an 8 bedroom co-living home, with each room let independently.

   Rooms

   8, at $340/wk each

   Total rent

   $2,720/wk

   Build cost

   $890,000

   Land + build value

   $1,790,000

5. Before and after

   	Old house	New build 8%	New build 9%
   Annual rent	$28,600	$141,440	$141,440
   Total debt	$550,000	$1,090,000	$1,090,000
   Interest cost	$38,500	$87,200	$98,100
   Rent less interest	-$9,900	$54,240	$43,340

6. The buffer advantage

   The plan is to hold a $100,000 buffer in an offset account rather than putting every dollar into the build. That would reduce the balance interest is charged on to $990,000, while keeping the money accessible.

   Effective balance

   $990,000

   Net at 8%

   $62,240

   Net at 9%

   $52,340

7. What this could mean for Clarence

   If Clarence moves ahead, this is the shape of it: less time on repairs, a clearer income picture, and a model he could repeat across the rest of the portfolio.

Numbers at a glance