One of the big goals most people have is to own their own family home outright without any debt.
While that’s a great goal to have and something that is worth aspiring to, you need to be careful that you’re not shooting for a goal that might actually be hurting you in the long run.
Let me explain what I mean.
When people have the goal of owning a home without debt, they immediately assume that it means they need to be paying off the mortgage as quickly as possible. Paying a mortgage off is very achievable if you have a good income and manage your finances well.
In fact, if you start paying down the principal, it is very possible to pay down your home decades ahead of when your 30-year mortgage term would end.
But that might not be the best option.
Instead of using your extra income to pay off a home, why not take that money and invest it in another property? Or what’s even better, start building a property portfolio.
The reality is that if you purchase a good investment property, over 10 or 15 years, the increase in equity will very likely outpace the money you could be saving in interest.
Spread that growth across two or three properties and you are likely going to be well ahead if you focus on building a property portfolio.
The goal is often to build a portfolio and then at a point in the future when your equity has increased enough, sell down one or more of the properties and pay off the remaining mortgage on your PPOR as well as the investment properties.
That way you are not only getting your PPOR free and clear, you’ve also got a substantial chunk of equity from your investment properties to work with.
Doing it this way will give you more options in 10 or 15 years and you won’t be starting from scratch, like those who are waiting to pay down their mortgage and then start investing.
Again, there’s nothing wrong with having the goal of owning your home outright. But it’s important to think long-term about your financial future. Of course, your PPOR is a big part of retirement planning for most people, but you don’t want that to be the only string to your bow.
Building a portfolio first will give you options that you might not have otherwise.
You even have ways of ramping up the equity in your portfolio by doing creative strategies like purchasing a home, renovating it, and manufacturing equity. Or even undertaking small-scale developments.
There are no shortage of ways of getting ahead when using property. Your job is simply to recognise that there might be a better way out there and be prepared to think of the bigger picture.
