Invest or pay off your home loan? You should do both.
Spending your whole working life just to end up with your own home paid off is something most people focus on. But everyone needs to know that it is not going to ensure that you have adequate cash flows, and without cash flow, you won’t be able to have choices in your retirement.
Yes, paying off your home should be number one priority. But if it takes you 30 years to do that, you will have missed numerous opportunities to grow wealth from investments.
When I work with clients to build a property investment portfolio we also put a plan in place to pay off their own home. Once we can get a portfolio up and running then we can use the increased equity in the investment portfolio to pay down the personal loan. This helps to get rid of your personal debt in half the time as it would take to pay off your home over a bank’s 30 year term.
What’s the secret? Well, investment debt is “good” debt, because someone else is paying it off for you while the equity in that property continues to grow. Personal debt is “bad” debt because you have to go to work, earn the money, and pay your taxes.
Then you have to use what little is left to pay your mortgage, while at the same time cover your bills, feed the family, and if you are lucky maybe save some money.
That is not a recipe for financial freedom. It is a grind, it is a “rat race”, and it is, for a lot of people, depressing.
So, what are the solutions?
Most people that have owned their home for 5 years or more will have some equity built up. Then, if you have an income that will service more debt from the bank’s stress testing, you will be able to leverage that equity and pull it out as investment debt. This is “lazy money” that you now have access to and can start your wealth creation journey. It is yours but you never see it until you sell or get a facility in place that you can use to purchase investment assets.
Once you have access to this “lazy money” then invest it in assets that will grow in value, someone else pays all the expenses of the asset and it grows in value over the years.
This is not “get rich quick”, but wealth creation over a period of time. I would suggest to would-be investors, this is a minimum of 10 years, but more likely 15 to 20 years to become financially free.
Is that worth the wait? Most people think about it and never get started. It is too hard, they don’t know where to start, they don’t have the knowledge, and yet in most case they are too comfortable and do nothing. When they suddenly hit their 50’s they wish they had started years ago.
Yes, that is around 40 years of age. They have got educated, built a career or trade, established a business and life is good. They spend all the money they earn on a mortgage and enjoying life. Their children are growing up and starting the make their own way in life. Most people are too busy to sit down and plan for their retirement, and that should be when you are financially able to choose what you want to do, not have to go to work because you need the money.
Once you stop trading time for money, and get your money working for you, then you are financially free.
This is the time in your life that you need to start planning for your future, creating money magnets and paying off your personal home loan debt.
Unfortunately, mainstream Banks do not encourage you do this. In fact, they want to keep you there as a customer for as long as possible. They know you are at the peak of your earning capacity and they want a slice of it for as long as possible. Paying a personal mortgage for 30 years when you have the capacity to build a property portfolio, is dumb.
Once you realise that you can move personal debt into investment debt then your life changes. You have more cashflow, you have more money to spend on yourself and your family and the Banks will lend you more money to fund your investments. Once you get this ball rolling it slowing picks up speed and then it becomes exponential.
You need to understand that property investing is a business and you do not start a business to lose money and fail. You need to follow a system that is proven and minimises all the risks that can eventuate in this industry. It is not a hobby, nor should it suck up money from your personal funds and cashflow. The business has to be profitable from day one and your assets must grow in value over time.
You need to have team of advisors around you that are specialists in all the areas that you need support in. Legal, Accounting, Finance are the pillars of this business. Get your structures in place before you start and only then think about property.
This business is more than just buying property.
Once the foundations are in place then you have to get educated about what to buy and where. There is no point in buying a property in an area that going backwards and there are no tenants to pay you a good rent. Do not fall into the trap of becoming a “social housing provider”, leave that up to the authorities that are set up to do that.
Once you buy good investment properties, in good areas you will attract good tenant that will pay good rents.
The more investments properties you have set up as business, the bigger income or dividends you will be able to pay to the shareholder of that business. Once the money starts rolling into the business, pay your taxes and spend what is left however you want. Maybe pay off personal debt.
Getting rid of your personal mortgage should be a priority for everyone.
But working in a job makes it so hard to do. For those people who know how to create “money magnets” from the assets they have, will be able to pay off their personal debts early and create passive streams of income that pay them for the rest of their lives, and their asset base grows in value at the same time.
Create a business from the “lazy money” you have, build a property portfolio, pay off your home loan early, get passive income streams for life and build a legacy that future generations can benefit from.
That’s what I help my clients with and why I love my vocation.
Come along to one of my Property Investor Nights soon, where I’ll be sharing more inside information on how to free up your life with property. Use the form below to book your seat.
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Property Coach and Investment Mentor
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