Here we look at the idea of using your extra mortgage repayments to invest in property.
The great Australian dream is to own your own home. We have home ownership rates here in Australia like no other country, we are very good at it. On the one hand it is very comforting to make those extra repayments and pay your home off sooner the downside is that you may end up with just your home and no other assets and miss the opportunity to invest in property and actually increase your overall wealth without a real change to your ‘cash flow’.
There is that term again ‘cash flow’, we have talked a lot about it in the past and I guess we will continue to talk about it because it is so important when it comes to property investment.
You can actually use your extra mortgage repayments to invest in property without really changing your ‘cash flow’.
Here is an example of it would work. Lets say you buy your family home for $500,000 and it is a principle and interest loan and after 10 years of paying your mortgage you are now in a position to make extra repayments with the view of paying the mortgage off within the next 5 years. If we use the standard rule that property doubles every 10 years and if you went down this path you will have paid off your home and you will have an asset worth $1,400,000.
However if you used part of the extra repayments to buy an investment property worth $550,000 in 5 years from now you will have combined assets estimated at $2,180,000*.
It becomes even more impressive when you add another property and the numbers start to look like this $2,960,000*.
Using those extra mortgage repayments to buy investment property can help you to build long term wealth. When doing this it is important to make sure you understand your ‘cash flow’ and ensure you are buying the right investment properties.
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*Using the standard rule that property doubles every 10 years