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If you own your own home and you want to grow your wealth, you may be asking, �Should
I pay off my home or buy an investment property?� It's a very worthy question to ask, and in
today's episode I plan to help you answer that question for yourself.
Hi, I am Ryan from onproperty.com.au, your daily dose of property education and inspiration.
And when doing research for this article, I found a few web-sites and I found a few
videos and basically the general consensus is something that truthfully I disagree with
and they were saying that in all situations you should not spend money to buy an investment
property but you should take extra money and try and pay off your home loan faster. I am
not a financial advisor, so I can�t give you financial advice but what I can do is
go through a series of questions that you can ask yourself so that you can make a better
assessment for your situation and make this decision for yourself.
All right, I want you do an activity and I don't usually ask you to do an activity through
video. Don't worry, I am not going to make you jump up and down or anything like that,
but I want you to think about the future, I'm not talking one year or two years or five
years, but so much further into the future. Let's set a time of probably about twenty
years, because that's probably how long it�s going to take you to pay off your home loan.
In 20 years time let's look at both scenarios, �What are the benefits of just paying off
your home loan?�, and then, �What are the benefits of buying an investment property?�
Let's look at just you owning your own home and paying off that first. Well you are going
to have no grant and no mortgage to pay, which is going to be great, it is going to mean
that your expenses will decrease because you paid off your mortgage you don't need to pay
any more, you've got security because the bank no longer owns your home, you do and
if interest rates go up you don't care, it doesn't matter to you because you own your
own home, so you got, you know those lowering expenses, you got that security, but oh, you
got no income. Alright, your house is not going to generate you an income because you're
living in it, you would actually have to rent it out to move and it may go up in value,
but I question as to whether that increase in value is actually accessible to you. Sure
you could sell it to access it, but then you have to buy somewhere else to live and you
would probably would want to pay the same amount of money because the whole market would
have gone up. So I vote that when you just pay off your home loan, in the future, yes
you got some benefits there but there's also some negatives so you don't have that rental
income coming in and you can�t really access your growth, you can but not really.
All right, now let's look at the benefits of if you were to buy an investment property.
Well, firstly you've got the negative of not taking longer to pay off your own property
, okay, that's bad but eventually you probably should be able to payoff your home loan anyway,
right? And the benefit with owning a property is that over time, even if you purchase a
negatively geared property, in ten years or maybe twenty years the chances are that the
rent in that property going to go up and at some point in time the rent is going to exceed
the mortgage and expenses on that property flipping it into a positively geared property
so, that means that properties going to generate you passive income which over time can be
used to pay down your home loan or can be used to fund your lifestyle, so you have got
- you probably going to pay off your home loan anyway, you have got passive income to
help you fund your lifestyle, and you got capital gains that you can actually tap into.
______ (unclear 3:43) yes, it�s rolling but if we were to sell and move well the whole
market is going up so we probably have to buy something for the same price with an investment
property because you already have your own that you live in. If you needed money you
could sell it and access that growth in order to fund your lifestyle and maybe you have
an equity loan against it, you can do what you want with it, but if you kind of got that
growth you can sell and still got that security of your own home, so that's a massive loss
and so basically like you are less reliant on superannuation. So if you were to just
purchase your own home or when you retire, you are going to be fully reliant on your
superannuation or on a government pension, whereas if you own your own investment property
you may still need to draw from your superannuation of course but having that passive income makes
you less reliant on it.
One property probably isn't going to deliver you complete financial freedom. I do know
the story of an old lady that I read in a magazine once and I couldn't find it but she
own one house and one investment property and both were split into two income properties
she was financially free off just those two properties. Well for most of us that isn't
going to work so you need to work out how many investment properties do you need to
own in order to be financially free and so go to episode 77 and I'll show you how you
can roughly work that out. And also I am going to add a new calculator to On Property Plus
where you can type in your goal income and you can type in what sort of properties you
are looking at and we will then tell you, well, how many roughly do need to be financially
free. You can check out On Property Plus by going to www.onproperty.com.au/plus now.
And I'm going to give you some advice, and my advice is stop thinking about either or
and stop thinking about both and rather than saying should I do this or this, ask yourself
how can I do this and this, how can I payoff my home loan faster and purchase an investment
property at the same time, and believe it or not but asking that slightly different
question, puts your mind into overdrive and will help you to come up with solutions for
that one simple solution would be to purchase a positive cash flow property. Positive cash
flow properties generate passive income above the expenses that you have to pay on it, so
therefore you could use that passive income to pay off your home loan faster. That's just
one solution and that solution obviously is not for everyone but that gives you an idea
of how you can pay off your home loan faster and buy an investment property. Well maybe
you could look at building a granny flat on your home so that you could get income from
renting out that granny flat, sure you are going to lose some yard space but it means
that you pay off your home loan 5 or 10 years faster. Would that be worth it to you? Stop
thinking outside the box and start thinking how you can do both, so that when it comes
time and you paid off your property and maybe it's time to retire you've actually got things
working for you rather than just a house that you don't have a mortgage on anymore. Now
do I need to say that obviously there's going to be some risk out there? Investing is never
risk free but do your research, probably and you can minimize your risk significantly.
So hope that I have helped you assessing your own situation, should you pay off your home
loan or buy an investment property and I would like to flip that question and say, �How
can I pay off my home loan faster of and buy an investment property?
So until tomorrow, remember that your long-term success is only achieved one day at a time.