Can I invest while I still have a large mortgage?
Using the advice of qualified Brokers and accountants (who can all be recommended by Lime), it is much easier and quicker to pay off a home mortgage through the assistance of owning an investment property. We believe one of the biggest mistakes some clients make is waiting until their non-deductible mortgage is paid off before thinking about property investment.
Many of our parents have always suggested that if you want to retire early and be financially free, you need to be debt free. This statement comes from a total misunderstanding of the difference between good debt and bad debt. Would you have any idea of how much Australia’s richest man, Kerry Packer, had borrowed on his business empire at the time of his death? Money makes money!
Many of us have been brought yup to believe debt is evil. I actually believe this myself when thinking about the type of debt most of us are used to; mortgages, car loans, overseas holidays, credit cards and the like. All debt that must be paid off as quickly as possible with what is left of your after-tax dollar!
As you get older, there is often a large amount of equity in the family home. Having it sit there doesn’t make you any richer, however, if you get it working you could have twice as much, if not more, on retirement. Most people spend a lifetime paying off their mortgage and when they finally do, the banks say, “Why not use that dead equity to invest elsewhere?”
Instead of waiting to pay off your first home, why not invest now?
Reducing your personal, non-deductible debt is a good thing. However, investing in a second or third property will often make hundreds of thousands of dollars more than the few thousand you’ll save in interest paying off your home. Your lifestyle does not have to suffer if you buy more investments, even if they are negatively geared.
Just as you can use your spare equity as a cash buffer, you could use your equity to help cashflow any difference between the rent and the mortgage.
Think of it as working capital in your business. Banks have responsible lending codes to abide by which should ensure you have the serviceability to cover extra borrowings.
If you want to play things safe you should buy a home, pay it off, and invest from there. However, if you want to create an extraordinary retirement, you need to go against the crowd.
Investing can be risky if you don’t know what you’re doing. Make sure you hire professionals who are making money through property investment themselves, rather than people who have the qualifications but aren’t practising what they preach.
