Did you know? Your home is a liability!
Spoiler alert! Your home is not your greatest asset. A lot of people believe it is, but in actual fact, your home is a liability, even if you are mortgage-free. Your home will always incur costs – rates, maintenance costs and insurance. And to top it off, you don’t earn any income from that property. Given you may experience some capital growth, you won’t be able to spend that money because you still need to live in your home.
With council rates, insurance, electricity, internet connection and so on, you could be looking at about $5,000 a year. When your house hits about the 20-year mark, you’ll have to start paying for maintenance – about another $5,000 a year.
You’re in for around $10,000 a year (or $200 a week). That money has to come from somewhere. This shows that your home is a liability and not a real asset. Anyone who tells you that your home is your greatest asset, it’s because their home is their greatest asset, in other words, the most valuable thing they have in their financial life is their home. They have not succeeded financially if that is the case.
When I meet those people, the conversation goes something like this:
Me: Is your home your greatest asset?
Me: When did you buy your house?
Me: How much did you pay for it?
Me: Great! How much is it worth now?
Them: About $800,000.
Me: Well, that’s amazing! You bought it 40 years ago for $40,000 and it’s now worth $800,000. Is that the best financial decision you’ve ever made, to buy your property?
Them: Yep! 100%.
Me: Well, why didn’t you buy 10 houses instead of one then?
[I shut up and wait for it to sink in]
You see, what happens is that the house makes you money. People buy one house and try to pay it off. You shouldn’t be doing that. Instead, you should be buying one house and then another one and another one and so on. If you focus on buying as many houses as you can and then wait 10 years, you could sell half of them, pay the other half off and own 5 houses outright instead of just one. The magical moment happens when the value of the property goes up.
If you buy just one house and try to pay it off, all you’re doing is working a job and using every dollar you’ve got to pay it off. Instead, if you pay the minimum amount on your house and buy as many investment properties as you can, let them all go up in value, then you can refinance or sell a few of the spare ones to pay off the mortgage on your home.
If your humble goal is to simply pay off your mortgage, then all you need is money to pay it off. What’s the easiest way to get money? Is it working a job and slaving your arse off? Or is it to own some properties that are going up in value by hundreds of thousands of dollars on their own? It’s a massive mindset shift!
When you get to retirement, all the superannuation you’ve got is not going to be enough to pay yourself an income or pension. At some point in your retirement, you’re going to run out of money and your financial planner is going to advise you to sell your house and “downsize”. The truth is, wealthy people don’t downsize. When they get older, they employ a housekeeper and a gardener to help them look after the property. “Downsizing” is just a cover story for when people run out of funds and need to get money out of their house to survive. You’ve got people in your life that have downsized, everyone does because the quality of financial advice given in this country is very, very poor.
Stay tuned for more insights from Wealth Through Property.