Debbie's story

1. Where Debbie started

   Debbie owns an older investment house in Melbourne worth about $900,000, renting for $570 a week. Once management, outgoings and debt are accounted for, it was not producing the income she wanted heading into retirement.

   Rent

   $570/wk

   Property value

   $900,000

   Gross yield

   3.29%

   Net cash flow after debt

   -$6,842/yr

2. The decision

   Rather than continue holding a low yield house, the option Debbie is exploring is knocking down the old dwelling and building a purpose built 6 bedroom co-living home on the same site, aiming to lift the yield and strengthen her position before retirement.

3. The build concept

   The concept explored was redeveloping the site into a 6 bedroom co-living home, with each room let independently at $350 a week.

   Rooms

   6, at $350/wk each

   Total rent

   $2,100/wk

   Build cost

   $575,000

   Land + build value

   $1,475,000

4. Before and after

   	Old house	New 6-bed co-living
   Annual rent	$29,640	$109,200
   Gross yield	3.29%	7.40%
   Total debt	$350,000	$925,000
   Net cash flow after debt	-$6,842	$12,280

5. Putting the surplus to work

   Rather than spending the extra cash flow, the plan is for Debbie to apply it toward reducing debt faster, on top of standard loan repayments, so the property would improve her income while also strengthening her equity position ahead of retirement.

6. The path to 65

   If this concept goes ahead, it is modelled forward to age 65 using assumed rental growth of 3% a year and property growth of 4% a year, alongside standard loan repayments plus the annual surplus.

   Estimated property value at 65

   $2,455,983

   Estimated remaining loan balance

   $430,862

   Estimated equity at 65

   $2,025,121

   Estimated annual surplus at 65

   $18,034

   Based on assumed rental growth of 3% a year and property growth of 4% a year. This is a modelled estimate, not a forecast, and actual results may differ.

Numbers at a glance