Is building your portfolio the key to paying off your mortgage?
After asking themselves "How do I enter the home market?", it seems the next question on the lips of most buyers is "How will I pay off my mortgage?" Many people are looking at markedly steeper mortgages nowadays thanks to rising property ...
After asking themselves "How do I enter the home market?", it seems the next question on the lips of most buyers is "How will I pay off my mortgage?" Many people are looking at markedly steeper mortgages nowadays thanks to rising property values.
CoreLogic RP Data puts the aggregated home value in Sydney at just over $868,000, with the figures for Melbourne ($706,640) and Brisbane ($503,690) not far behind. In fact, according to Australian Bureau of Statistics figures from the end of 2013, housing debt made up three quarters of all household debt in this country.
So how can Australians go about pruning their mortgages and alleviating their debt burden? It may sound counter productive, but it could be by buying more houses. A portfolio of investment properties could, in the long term, help get your residential home loan fully paid down. At DPN, we advise our clients with a multi-pronged investing methodology, which any buyer can use to help bring down their home loan debt.
Tax reduction strategies
Among the benefits of owning investment property is that the Australian Taxation Office allows you to deduct many of the expenses involved in the venture from your ultimate tax bill. This is the case whether you're running a negatively or positively geared property.
Costs like the interest you pay on your investment loan, the council rates and water charges you pay and even something as minute as stationery and postage can all help lower your tax. This will leave you with more usable income, which you can funnel toward your residential mortgage.
Positive cash flow
Speaking of positively geared property, this in itself can be a boon for the repayment of your mortgage. Any excess you have once you've used your pay cheque and rental income to pay off your investment home loan and other costs can be put back into your personal mortgage.
According to the CoreLogic RP Data Quarterly Rental Review for 2015, advertised rents for houses in the combined capitals went up by 1.3 per cent quarter-on-quarter, putting them at $435 per week. Just going by this figure, that could be over $2,000 worth of rental income a month from just a single property.
Buy and hold
Don't forget that, over the years that you run these rental properties, they're going to be gradually growing in value. For example, let's say you have a portfolio of four cash flow positive properties worth $500,000 each. In 10 years time, they might double in value to $1 million each. Now you've got $4 million worth of assets, and perhaps only half of that in debt. If you sold your properties, you would be mortgage-free while still having millions of dollars left over.