Should You Pay Off Your Mortgage Before Investing In Real Estate?
Conventional wisdom says you should do everything in order.
First you crawl.
Then you walk.
Then you run.
I mean, we’ve been conditioned since birth to do everything sequentially. And investing is no different.
First you buy a house.
Then you pay it off.
Then you invest in another property.
Doing Things ‘In Order’ Will Leave You Poor
But there’s actually no rule which says you have to finish one task before starting the next.
And certainly no rule which says you need to pay off your house before investing.
With most home loans being 20 or 30 years, most people won’t even start investing until it’s too late.
The sooner you start investing, the better.
Investing is like a snowball which grows bigger and bigger the further it rolls.
Investing when you’re older is like rolling a snowball down a really short hill.
It’s not going to get much bigger.
But investing earlier is like rolling it down a really long hill, giving your snowball plenty of time to grow and grow.
Of course, the question is … WHEN can you start investing?
Or more to the point, can you invest if you have a home loan?
Let’s Tackle The Myths Around This, One At A Time.
Myth 1. I don’t have the financial firepower to invest while I have a home loan
In order to invest, you need two things.
And one of those is a deposit.
However, you don’t need cash saved up in the bank to use as a deposit.
Instead you can use the equity in your home, which is simply how much more your house is worth compared to how much you owe on it.
Typically if your house is worth $100,000 more than you owe on it, you can use this to get started.
And no, you don’t need to sell your house to use it.
Myth 2. I can’t afford it. It’s too much money
The second thing you need is enough income.
And you might be surprised to know that most investment properties don’t cost much to hold.
If you need to, you can choose an investment property with a higher rental yield which means you’ll spend even less to hold it.
You might not even be out of pocket at all.
Of course, your capital growth might be slower with a higher rental yield. That’s common.
But if it gets you in the market and gets you underway, you’re getting ahead.
In today’s market, once you take the tax benefits into account, you might only be $50 to $100 a week out of pocket.
Myth 3. The banks won’t lend me the money
The banks won’t reject you for having a home loan already.
They have customers with millions in loans, and they’re fine with it.
What they care about is that the numbers stack up.
Once you add your new rental income into the equation, the numbers look much better and it’s likely that your loan will be approved.
Myth 4 (the big one). It’s too risky having too many loans
OK, this is the big one.
A lot of people struggle to cope with having this much debt.
A loan for their own house is OK because everyone’s got that.
But a second, maybe a third or fourth.
We’re talking over a million dollars of debt.
And sure, it seems risky.
But is it?
Not investing is far riskier than investing.
When you look at it, investing in real estate is far safer than relying on your 9-5 job.
For a start, the superannuation you’re saving up probably won’t be enough for the kind of retirement you deserve.
Then there’s the risk of losing your job, and being too old to get another one which pays the same.
Or getting sick, or needing to deal with a sick family member.
Everyone needs a backup plan.
When you do it right, investing in real estate can be a low risk.
You’ll have a house in an in-demand area.
You’ll have plenty of potential tenants wanting to pay you to live there.
And your loan will be backed up by a physical asset – the house itself, which you could always sell as a last resort if you needed to.
Not to mention the value of your house, along with the rents you get will continue to rise over time.
Curious To Find Out If You Can Invest Now?
Even if you’ve got a home loan, the chances are you can still invest.
If you’ve had your home for 3 years or more, it’s probably gone up more than enough for you to start.
And the financial commitment to get started is certainly less than you might think.
Let’s find out for sure.
We run complimentary one hour sessions with our senior property consultants.
They’ll take a look at your situation and assess your ability to begin investing in real estate.
And even if you can’t start now, they’ll let you know when you can.
They’ll explain how investing works, help you put a basic strategy together which can replace your income in future, and answer any questions you have.
There’s no cost for this, and no obligation to do anything with us.
Our only hope is that if you find it valuable, you might consider our help if you go forward.
Of course, that’s entirely up to you. Your first step now is to simply find out what your options are.