Hi,
I am about to purchase a $247-$250 property and want to have it paid off in 10 years or less. I have read, ‘ Your mortgage and how to pay it off in 5 years’ . I am on $41K and my partner is on 28K is this possible for us and if so how do we go about it? please advise, I realise that the more u put in the more u pay it off, but the lady who wrote this book paid hers off in 5 years! how is that possibly, I mean u have to have money to live off! looking for some advice/answersthank you
was that the book where the woman talked about buying a whole cow and then having a butcher cut it up for you and sticking it in a freezer to eat for the rest of your life? if so, then I think the woman paid it off becuase property cost a lot less when she bought the property she was talking about.
Your combined total income is $69k in current dollars. After tax let’s say it goes down to $52k in cash that you receive. so, if you had no living expenses and pouredevery dollar into the mortgage the best outcome would be to pay the mortgage off in say 6 years or so (remembering that you have to pay some interest on the money hence why 6 years). Reality is though that you do have to pay living expenses and so on. on the other hand, your total family income should hopefully rise each year and so will the cost of living to an extent.
Instead of having a number like 10 years or less to pay it off, sit down and do a detailed budget. both of you should track what you spend for a month down to the dollar. with a budget, you will then be clear on how much you can contribute to the mortgage. If you set up minimum payments in line with this, you will be more likely to keep to the budget.
An offset account can also help to combat some of the interest payments if you have spare cash around, though you tend to pay a slightly higher interest rate for the privelage.
…so assuming 52k net per annum, 2k per fortnight. Fixing 247k at 6.7%, $1,300 per fortnight repayments would see the house paid off in ten years. It is absolutely possible for a couple to live on $700 per fortnight for food, bills, petrol and clothes (I live quite comfortably on precisely half that – the remainder of my salary is invested), but whether or not you wish to is up to you.
Cheers, F.[cowboy2]Why would you want to pay it off so fast?
That sounds like my grandparents thinking – they only ended up with the one property.
Why not pay it off over the longer term and buy more property as you go?
When you are reaching retirement you can sell one investment property that will prob pay out all your debts. Then you will have a great income stream for life rather than one home paid out and the pension…..
Just trying to challenge you to think it through.
Cheers,
Simon Macks
Residential and Commercial Finance Broker
***NODOC @ 7.15% to 70% LVR***
[email protected]
0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
Could you do it the other way MH and pay off the house first and then buy properties (to have income stream in retirement). That way you’re saving a whole bunch of interest on your PPOR loan yeah? Both ways have their advantages and disadvantages.
Absolutely you can pasandbec. You can do whatever you like. But lets consider some numbers.
What will IP’s cost in 10 years time? Historically they should double. Booms seem to be every 10.4 years and 100% growth is conservative.
So if a hypothetical person was to pay IO on their PPOR worth $300K and buy two other places worth $300K they will control $900K of property that doubles in 10 years. Thus having a portfolio worth $1.8M with say $800K in debt. Selling one IP at this point will clear their PPOR debt and most of the remaining IP debt – if they chose to.
This achieves the goal of paying down the PPOR in ten years and possibly avoids the scrimping lifestyle that is being discussed.
Or they can pay down their home in ten years. Have a home worth $600K and then buy some IP’s at $600K each.
Comments?
Simon Macks
Residential and Commercial Finance Broker
***NODOC @ 7.15% to 70% LVR***
[email protected]
0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
I have a comment…
<edited>
Sorry, that was a bit OTT… but I still reckon your predictions are so far off the mark they could be called crap.
Pasandbec, I like the way you think. With your strategy you will have a guaranteed outcome, whereas that suggested by Simon is based on a future prediction of the continuation of the mythological rule that magically forces houses to ‘double in price every 7 to 10 years’… which I have repeatedly shown to be bollocks anyway.
Your grandparents may have been onto something appropriate for their time, and I would suggest that the economic outlook today is somewhat closer to that of 1927 than 1997… Check this article by The Guardian explaining the devil in the detail of the IMF’s latest statements…
While I should point out that I’m no financial adviser, I personally believe that debt is going to become drastically more expensive over the next decade and our standards of living are going to deteriorate.
Cheers,
F.[cowboy2]Wow Foundation – I always thought you were more courteous of other people’s ideas than that.
Sorry that I upset you by posing something counter to that which you expouse..
But everyone else please understand that I am advocating no particular strategy. Just providing food for thought so that people consider all possibles avenues.
Have a super week Foundation.
Cheers,
Simon Macks
Residential and Commercial Finance Broker
***NODOC @ 7.15% to 70% LVR***
[email protected]
0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
Just thinking Foundation….the ANZ have just published that the current slump appears to be one of the milder on record and may end sooner rather than later.
Property has historically doubled every ten years.
You think this time will be different? I recall from my share days that the saying “This time it is different” was usually fatal
I am not saying you are wrong but would love to see your research and results. It may well influence my strategies.
All the best
[biggrin]Simon Macks
Residential and Commercial Finance Broker
***NODOC @ 7.15% to 70% LVR***
[email protected]
0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
I tend to agree with Simon’s philosophy and have put my money into that direction.
Long term I don’t think the sky will fall in or real estate prices will flatten out. Dips and bumps for sure, always have been and always will be, but buying dirt should be a long term proposition.
Many guru’s have said they churn and burn to climb the net worth tree and keep their cashflows ticking along, but a few have been quoted as saying if they had sat on their holdings and not been “active”, they would have been in a much better position. Buying alot of real estate and then just sitting on it and letting it grow is a boring yet pretty good strategy. Sometimes the “do nothing” option is the best.
Where we are living now, the blocks were carved up in the initial development in 1914. Blocks sold for 26 pound (I think that’s $52). One pound deposit, bugger all repayments per month and no interest charged…geez the oldies had it easy. Given the latest VGO data, they’ve done 11.77% p.a. compounded over 91 years.
Our industrial blocks have averaged 12.91% over the past 41 years. I think Simon’s comment about dirt doubling every 10 years (~ 7%) is a tad conservative. Long term that’ll affect your projections enormously.
Sure, through the years there have been bumps and humps, but if you look long term things certainly stay ahead of inflation and you eventually get a “bob or two” behind yourself.
Simon’s proposition of magnifying that effect by purchasing more than one and holding the debt constant by paying IO definitely has merit…IMHO.
Cheers,
Darryl Moore
“No point having a cake if you can’t eat it.”
Hello Mcubed82,
12 years ago my wife and I we’re in a simular possition as you are right now. We tried our hardest to pay our mortgage of as soon as possible, and now that I look back it wasn’t worth it. We did simular things as Anita, offten staying home on holidays, working extra hours all that sort of stuff.
I totaly agree with Simon. Perhaps you could pay your mortgage down aggressivly for three years and then use the equity you have acheived to start an investment portfolio. If your home is worth $300,000 it’s going to increase by $12,000 a year anyhow. Provided you weren’t riped off.[gossip]
So if a hypothetical person was to pay IO on their PPOR worth $300K and buy two other places worth $300K they will control $900K of property that doubles in 10 years. Thus having a portfolio worth $1.8M with say $800K in debt. Selling one IP at this point will clear their PPOR debt and most of the remaining IP debt – if they chose to.What would be a realistic example that would apply to Mcubed82 – i.e., income of $69K a year.
Jason,
I really don’t know them well enough to speculate. I think if one was to choose this path (and I am in no way recommending it) then they could very quickly work out what they could afford to hold. I imagine growth properties might be the goal so one would expect to negative gear.
There are a number of new properties available now in the $200-300K range that have good non cash tax deductions to help. I know that a good rental property can be found in my neck of the woods for about $250K. These would be relatively hassle free. With a bit of ingenuity one could spend $350K and get a return of $500 pw – this was my last purchase.
I don’t counsel anyone to embark on any sort of buying spree without doing plenty of research and learning – this is not a bull run where buying anything makes money immediately. There are plenty of experts out there who know nothing except the recent boom. I even met a REA who was 24 who told me that property never goes down!
So keep your eyes, ears and mind open and do a lot of research before deciding on any strategy is my advice to the good MCUBED!
What do you think?
Simon Macks
Residential and Commercial Finance Broker
***NODOC @ 7.15% to 70% LVR***
[email protected]
0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
Hi Mcubed82,
I also read Anita’s book some time ago, and I think for memory she actually paid it off in 3 years! I think the idea is showing what’s achievable, if you’re prepared to sacrifice along the way. Let’s not forget also that this was her PPOR not an IP, so there are some benefits of paying it off, or at least down somewhat. More available equity and the interest on your home loan is not tax deductible. It’s also more money every week you can put towards investing, instead of taking up weekly cash servicing your home loan. Don’t get me wrong, I am not in her position, but she does give some basic formulas for budgeting etc, particularly if you’re just starting out, and not with kids to provide for!
Cheers, ShellbyObviously everyone out there has a different situation their in, and also a different mindset. Some are comfortable to be more aggressive than others with their portfolios and some aren’t.
I personally agree with Dazzling & MH, I am looking to be more aggressive with my plans, some of the people out there are not educated enough to feel comfortable with large amounts of debt in the hope of future price rises, they dont realise this is a far more efficient way to structure your portfolio for growth in the long term.
Once the issue to invest more aggressively or not has been resolved, then the real important question of what and where to buy has to be addressed, this may be the reason for not acting for first timers, they may feel more comfortable to do nothing because everyone else seems to be doing nothing and just slug it out at work week to week paying for one property for 30 years!
Why be less than your best just to make the people around you feel more comfortable![cigar]
Higly Motivated Investor
hi Mcubed82
Can I give you another idea and please foundation don’t abuse me??
1. change your loan to interest only fixed for 5 years take the income that you have saved( from your normal repayments) and find 2 properties 1 income positive in a rural area the other in a high growth negative investment.
2 work the numbers so the end result of your out goings are neutral (or negative if you are in the higher tax bracket) ( make sure you have purchased the investments in a company with a trust underneithe and make the rents index link to cpi or 6%
3. hold for 5 years
6. draw the equity out of the growth unit due to increase of rent sell ( I would draw the positives equity out until it was negative and hold)
7. draw out as much equity as covers your loan.
pay off your loan and sell which ever of the two properies is the highest return due to the fact that all of the above is working in a negative enviroment there is no tax as you havent made a profit and because you lent the money to start the companies off it is seen as a loan.
you have payed your house off and you are left with a investment property and because you have linked the rent it will pay itself off.
I wouldn’t if it was me pay off the house I would leverage to another property but ha I’m a mercinary.
5 years is a fine time line for growth but you can find properties that will give that growth but they are hard to find.
non of the above should be seen as tax advice and don’t do this at home kids etchere to help
Hi,
Being relatively uneducated in property investing compared to other’s, I have learnt alot by my mistakes as I have gone along. I have found that I started to become so obsessed with paying off PPOR and acquiring property that I had lost perspective on actually living and this put a long of unnecessary stress on myself. I have now tried to balance between paying off PPOR and investment properties but have left enough room to breathe and live. One thing is for sure, if I didn’t purchase my first investment property, I would not be in the position I am now. At the beginning, it was quite daunting, however over time as value increases, rent increases and the original loan remains the same, the picture is looking much healthier. There are a few simple things I have done to make life easier such as looking at the structure of loans, managing cashflow (so that I can contribute more towards PPOR). Once it is all set up, and managable in terms of the life style you choose to lead then it’s great. It’s a matter of learning with everything that you do. That’s my experience![biggrin]
Thanks for sharing that Hihopes – is always good to hear other’s experiences.
Cheers,
Simon Macks
Residential and Commercial Finance Broker
***NODOC @ 7.15% to 70% LVR***
[email protected]
0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
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