Method 7: Use Chunks of Equity From Investment Properties. 7 Ways To Pay Your House Off Fast
This method requires that you already have a couple of investment properties in your portfolio. If you don’t yet have an investment property, start by putting all your extra money into buying more properties and not onto your mortgage. We know it sounds counterintuitive, but open your mind to this new concept.
Here’s how it works: you start by investing in more property then you use the capital growth to pay off your own home. Once you understand this simple principle, it will flip everything on its head. You’ll probably be surprised at how simple and obvious this method is.
So, you need money to pay off your house. What’s the easiest way to get the money you need? Work a job where you get paid a few hundred dollars a day? Or own investment properties that are going up in value without any effort on your part whilst their expenses are covered by the rental income? Once the investment properties have increased in value you can sell or refinance them to pay off your own home.
It’s so simple. Yet everyday people keep slogging away at a job they probably don’t like. Trying to pay off the mortgage faster. That’s the hard way to do it! In reality, it’s a much better strategy to pay the minimum on your mortgage and put the rest of your money towards buying more properties.
Australian capital city house prices have doubled on average every 10 years since 1970. If we accept the assumption that this trend will continue and try this: buy two houses instead of one. One will be your own home and the other an investment property.
For the sake of this example, let’s say both houses cost $500,000 with 90% loans at $450,000 each. In 10 years’ time, both houses should be worth over $1 million each. In the worst-case scenario, they both still have a $450,000 loan if they were on interest-only, but more likely they’ll be significantly less if they’re on principal and interest. During the 10-year time frame, the rent on the investment property will also have doubled. Let’s say from $500 per week to $1,000 per week.
Now you can pay off the mortgage on your own home after just 10 years. But how?
You have two options:
Sell the investment property for $1 million and pay out the loan on your own place; or
Refinance the investment property, get a second loan against it for the amount outstanding on your own home’s mortgage and pay it off. The investment property will be able to service the extra loan because its rent has doubled since purchasing it, making this scenario entirely doable.
We prefer option #2 since Daimien’s Golden Rule #3 is to NEVER SELL. When you sell a property you’ll have to pay capital gains tax and you’ll never make another dollar from that property ever again!
Investment properties are different to your own home since they’ll receive rent indefinitely and can service the debt forever. On the other hand, your own home is yours to pay off and you can’t work forever (like your investment property).
It’s important to note here that the second loan you get against your investment property will no longer be tax-deductible since its purpose was to pay off your own home. And that’s fine since you still managed to pay your home off in 10 years instead of 25!
Now with that said, do you want to know how to pay your home off even faster?
Simple: buy more than one investment property!
The more you have, the more capital growth and increased rents you’ll collect, and the faster you’ll get to the point where you can pay off your own home. It’s a simple way to get out of the hamster wheel and get your money working for you.
Join our next webinar for more property investment information that will change the way you view the property market!