Which is the best investment option? Option 3: One property at 80% mortgage

If you missed the last two emails, we started this exercise to determine which is the best investment option. Let’s continue with option 3:

If I gave you $100,000, what would you do with it?

  1. Put it into a savings account
  2. Buy shares
  3. Buy one property @ 80% mortgage
  4. Buy two properties @ maximum % mortgage

Your third option is to purchase a property with an 80% loan, and a 20% deposit. Have you been taught to never borrow more than 80% and save a 20% deposit? I want to tell you right now that it’s really bad advice and I’m going to prove it to you here.

If you’ve got $100,000 to spend, the most expensive property you could buy would be $400,000 with a 20% deposit. You’d put in $80,000 for the deposit and the other $20,000 would cover your acquisition costs like stamp duty and legal fees. You’d avoid Lender’s Mortgage Insurance (LMI) since you’re taking an 80% loan – we’ll talk more about the LMI in option 4 coming up. You can then rent out the property for $400 per week.

Theoretically, 10 years later the house has doubled in value to $800,000 and you’ve doubled the rent you earn too. In the worst-case scenario, the mortgage has not changed if you’re paying interest-only. You would have made $480,000 in equity on your property.

Results of investing $100,000 into one property after 10 years.

If the share market also doubles every 10 years, why did you make more money from the property? This secret is called Leverage. With property, you can buy four times as much in terms of assets. In this example, you bought $400,000 worth of real estate instead of $100,000 worth of shares.

You used the bank’s money to buy a larger value of assets, then held those assets in the market. In addition, the property is bringing in an income to cover its own expenses, later resulting in passive income.

Join us next time when we look at Option 4 – purchasing two properties at maximum % mortgage.

~Daimien Patterson


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Legal Disclaimer: This information ('the information') is presented for illustrative and educational purposes only. It is not presented nor should it be treated as real estate advice, legal advice, investment advice, or tax advice. All investments involve risk and potential loss of money. If you require advice in any of these fields you should contact a suitably qualified professional to assist and advise you. Your personal individual financial circumstances must be taken into account before you make any investment decision. We urge you to do this in conjunction with a suitably qualified professional. Daimien Patterson, IntegrityX Enterprises Pty Ltd, and their associated trading names, companies, researchers, authorised distributors and licensees, employees and speakers do not guarantee your past, present or future investment results whether based on this information or otherwise. Daimien Patterson, IntegrityX Enterprises Pty Ltd and their associated trading names, companies, researchers, authorised distributors and licensees, employees and speakers disclaim all liability for your purchase decisions. You should do your own independent due diligence and seek the advice of qualified advisors before making any investment decision.