A married couple both aged 75 wish to enter into a Sale and Purchase Agreement with Silver Choice. The couple chose a deferred settlement period
of five years.

Silver Choice obtain an estimated value of $395,000. The vendor obtains a valuation of $405,000. Chattels are not included in either value. To set the purchase price, take the medium point between the two
values ($400,000).

Silver Choice present the property to a prospective purchaser. The purchaser performs 10 days due diligence. Upon confirming the contract, 5 days later the purchaser pays the couple an initial $30,000 deposit payment and four subsequent instalments of $10,000 on each anniversary date.

Prior to settlement the couple obtain a valuation of $571,021. The purchaser obtains a valuation of $551,021. To set the new market value, take the median point between the two valuations ($561,021). This Capital Growth of $161,021 equates to 7% per annum for five years.

On settlement the purchaser pays the couple the balance. This is calculated by taking the original house value of $400,000 and adding your 50% of the Capital Gain ($80,510). Then deduct the total deposits already paid to the couple of $70,000 leaving a balance of $410,510 at age 80.

The couple now elect to rent the property for a
two year fixed term. They decide to put $176,000 funds aside in an interest bearing bank account to cover them for 10 years rent to take them to age 90.

This leaves them $234,510 discretionary funds and improved cash flow with no more rates, home insurance or maintenance expenses.

Using the Silver Choice ‘Lifestyle Calculator’ on www.silverchoice.co.nz you can change the deferred settlement period and other variables to customise a plan that is suitable for you.

You may then analyse the cashflow effects on ‘Your Budget Calculator’ in conjunction with the ‘Lifestyle Calculator’.

The graph demonstrates, the couple would need to deposit into an interest bearing bank account $240,000. This deposit plus interest covers rental payments to age 95, ie:15 years.

Assumptions: Based on a bank deposit interest rate of 6.5% and an annual rental inflation rate of 2.5%, applied on a 2 yearly rent review.

Refer to: http://www.dbh.govt.nz/market-rent for market rental information pertaining to your location.

Average Inflation 1935 to June 2004 was 5.60% and Average House Price Growth 1935 to 2004 was 8.67%.

Note: Construction costs are linked to inflation. Current house replacement cost is always the underlying measure of basic value.

Source: Infometrics

Average rental price index 1990 to 2005 is 2.5%. Average inflation 1990 to 2005 is 2.2%.

Source: Infometrics