Case study: when commercial failure means losing the house
When the losses sustained by Maree’s high-end retail business spun out of control, Maree and Jacob found their only option was to sell their home or face severe financial strain.
Before starting the business, Maree and Jacob had paid out the mortgage on their $3 million property and had enough capital to further renovate their home. Money had never been a problem for the couple due to their high-paying professions.
It wasn’t until Maree decided to take the plunge into a retail business endeavour that their finances started to turn south.
Four years after starting the business, Maree and Jacob were using the redraw on their mortgage to keep the business afloat. Concerned that their equity would soon run dry, Maree sought help from an accredited finance manager.
“They were going backwards at a rate of about $25,000 a month, which is huge. But, no matter the amount, if you are going backwards you are heading in the wrong direction,” the broker explains.
“The only option they had was to sell their home, get the equity out of it and start again, trying to clear as much of the debt as possible, while still being able to live in the suburb that they wanted to live in.”
By this stage, the couple had already decided to close the business down – it was clearly not going to turn into a successful venture, so it was just a case of recovering as much as they possibly could.
After discussing the options with their broker, Maree and Jacob sold their property at auction before repossession became an issue, and made enough to buy another home in the same area.
“The reality is that if they didn’t make that decision, it would have been made for them. And when you leave yourself in that position, you are then exposed to a whole range of risks,” their broker says.
“You can’t really put a price on where they are now. They are comfortable, they can afford their home, they have gone on to get an investment property and they are building for their future.”
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** Names have been changed to protect clients’ privacy.