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.