Have you paid off your PPOR mortgage?

[Ace in the Hole]

We had out PPOR outstanding loan amount of just over 200k fully covered by funds in offset a few years ago, at about age 34.
Didn't pay too much attention to it and the debt just disappeared.

However, we just moved to a new PPOR recently and are now over 2 mil in the hole.
I actually like the feeling of digging a hole, then filling it back up again.
You tend to fill faster when you dig deeper.

 

[Rixter]

What I am trying to say is that anytime you want to invest it would be best to pay off any non deductible debt first and then reborrow the money again.

You will still have access to the same amount of money, it is just more effective this way.

How much do you need to have sitting in your offset account tho before you can access it for a IP? I take it I would need enough for a IP deposit & purchasing costs. Is this correct? If so, the way I do it you dont need to wait.

 

[Rixter]

So no non deductible debt?

Yes the PPOR LOC is non deductible debt, however my CG & equity from my increased asset base outstips what I would be saving in tax deductions if I reduced my non tax deductible PPOR debt beforehand.

 

[cimbom]

Really impressed by how early some of you have managed to do this. We're in the process of looking for our PPOR atm. A lot harder than I thought it'd be.

 

[scha9799]

Hi China,

just out of my curiosity, what do you do for living? How do you have 750K to pay the PPOR upright.

I am struggling to save 30K a year..... ><


a lot of time I just don't really understand how people can have so much saving....even some of my from have well paid mining job (150k) he struggling to save 50k a year....


If anyone can shed some light on how manage have so much saving ?



Thanks in advance


Taylor

 

[Rixter]

If anyone can shed some light on how manage have so much saving ?

Its easy - pay yourself first.

 

[Ideo]

Nope. Renting.

My rezoning is 4 months away from being done.

I've sold my 2 IPs to fund it.

After holding costs etc I should clear 600k. That will fund a ppr with a small mortgage plus money in the bank. Then rent, holding costs etc can fund other investments.

 

[Rolf Latham]

I actually like the feeling of digging a hole, then filling it back up again.
You tend to fill faster when you dig deeper.

A very common sentiment amongst those that feel they have CONTROL over most aspects of their lives.

ta

rolf

 

[scha9799]

Hi Rick,

What do you mean "pay yourself first ?" ( sorry about such stupid question)

I find it hard to understand the concept of pay yourself first can make someone wealth as an employee status....

Eg. say an average person earning 60k for an average job. he/she put away 10% for himself/herself, before pay any bills, food, and even tax ( say if tax can be paid after all the expense as an average employee)

6k a year saving in 10 year is only 60k. ( which is nothing ...)

if you take inflation, interest, compound interest rate, capital growth into account, it will also take about 10year-20year for an average person to have some "saving" in their account........

but as above many people manage to pay off or even able to pay outright for their PPOR in late 20 or early 30 ! I found they are amazing !!

Is there some form or some kind of leverage which multiply their money in short period of time ?....... business ? what sort of business ???... share investing ?? what sort of share investing ?? or just straight property ?? or even inheritance ??


Regards,
Taylor

 

[cimbom]

I think having a business or trading shares etc could help greatly but just a simple budget, as obvious as it sounds, can be a big help. I've found having another account for savings helps a lot as does saving a certain amount as soon as you get paid.

Go through your expenditure and see what you can get rid of without impacting your quality of life too greatly. It can be surprising how little things can add up and make a big difference. I think saving about 25% of your after-tax income is a good aim to work towards.

 

[Sheryn]

Eg. say an average person earning 60k for an average job. he/she put away 10% for himself/herself, before pay any bills, food, and even tax ( say if tax can be paid after all the expense as an average employee)

6k a year saving in 10 year is only 60k. ( which is nothing ...)

Taylor
There are many ways.

In no particular order I will suggest some strategies/actions that may be of use.

Some have a partner eg wife, husband etc and they live off one wage and save or utilise the second wage into investing. A smart couple would live off the smaller wage and use the bigger wage to service their investing.

You could take in a border or two if in your own PPOR to help, one person lived in their converted garage in the backyard and rented out their own house.

Other investors had the idea to buy up houses with underutilised shopfronts (old corner stores) and renovate into additional rental accomodation etc.

Our son who is on an average wage works a second job on Saturdays and the occassional Sunday. Other people may choose to undertake future study to increase their employability and earning capacity.

A few people choose to work overseas as they can earn more money or they live in remote areas in Australia.

Some choose to buy an affordable IP and do a quick cosmetic renovation to improve value. Some look at the figures and dont buy unless they can get 9% or better return.

All of us continue to read and learn and have a go at one thing or many things.

Wealth is created via...

i) job - employee

ii) shares - investing or trading

iii) property - residental or commercial which can be passive or active (buying something already built or building your own, developing duplexes or renovation.

iv) business - employer (hands on or off eg Manager)

v) invention

vi) inheritance - learning to stand on your own two is probably a better aim

vii) knowledge and education on money management

viii) connecting with people who are doing the same

x) making sacrifices to acheive your goals eg living frugally, driving an old car or making do with one car if you are a family

I would think the idea would be to get as many wealth creation strategies going as early as possible and see what you are good at as I was a late starter.

Leverage - most things can be leveraged you just have to work out how and to manage the risk to yourself financially if and when it does not go according to plan which is most times.


Cheers
Sheryn

 

[china]

Hi China,

just out of my curiosity, what do you do for living? How do you have 750K to pay the PPOR upright.

I am struggling to save 30K a year..... ><


a lot of time I just don't really understand how people can have so much saving....even some of my from have well paid mining job (150k) he struggling to save 50k a year....


If anyone can shed some light on how manage have so much saving ?



Thanks in advance


Taylor

Hi Taylor,

I saved 750k for PPOR over a twelve year period, between age 22-34. I am self employed and have no dependents, no partner. I live very frugally - no TV, single mattress, old clothes, old car, travelling only for business /tax deductible reasons. My major wastage of money / indulgence is eating out on which I may spend 200 per week. I think it is really lifestyle and mindset which has allowed saving enough to buy PPOR outright. Over this twelve year period, I did do minor investment in shares - about 100-150k portfolio which initially made some modest gains but when GFC hit, it took a hit. So, yes it is do-able. Not necessarily the most productive use of savings but certainly gave me a feeling of security.

 

[Angel]

Hi Rick,

What do you mean "pay yourself first ?" ( sorry about such stupid question)

I find it hard to understand the concept of pay yourself first can make someone wealth as an employee status....

Eg. say an average person earning 60k for an average job. he/she put away 10% for himself/herself, before pay any bills, food, and even tax ( say if tax can be paid after all the expense as an average employee)

6k a year saving in 10 year is only 60k. ( which is nothing ...)
if you take inflation, interest, compound interest rate, capital growth into account, it will also take about 10year-20year for an average person to have some "saving" in their account........

but as above many people manage to pay off or even able to pay outright for their PPOR in late 20 or early 30 ! I found they are amazing !!

Regards,
Taylor

Hi Taylor

To pay oneself first means to prioritise saving or investing. It is the opposite of spending everything we get on frivolous stuff and having nothing to show for it. I can understand very low income earners not having any spare cash to save, but a person on the average income could cut out some purchases each week in order to save if they really wanted to. I say that being a very low income earner myself and still being able to put away cash to invest.

You might think 60K is nothing, but it is the deposit for a small unit. Also it would be more than $60k once you compound interest. Once you move through the next property rise cycle, you will have some equity to draw on for the next purchase.

Paying off a huge mortgage in our early thirties is the exception, not the norm. My hubby and I paid off our first house in 8 years when we were in our twenties, but it was a tiny 2 bedroom house out in the boonies. There were two of us contributing to the costs too, although for us, half of that time there was only one of us employed.

Everyone's circumstances are different, we don't all live in Sydney and pay Sydney prices either. My best advice to anyone who wants to get ahead in life is to leave Sydney and its unaffordable housing.

Best wishes

 

[Peppin]

My Oh and I paid our PPOR off in 4 years. During that time I was on maternity leave for 1 year and hubby was on a 3 year traineeship. He also worked weekends driving trucks on weekends.
We decided to pay it off as quickly as possible so I could spend time at home with our kids when they were young. We now access the equity for investment purposes and it has worked out for us.
I feel very fortunate that I have been at home with our children in their young years. We were elated when we fully paid PPOR off.

 

[Terry_w]

Yes the PPOR LOC is non deductible debt, however my CG & equity from my increased asset base outstips what I would be saving in tax deductions if I reduced my non tax deductible PPOR debt beforehand.

So you must be paying down this non deductible debt and borrowing against equity to invest.

I don't think you understand what I am saying - or I don't understand what you are saying.

I would never use a LOC other than for borrowing equity to invest. If you were to ever move out of this house and rent it the loan may be large but the deductibility of the interest destroyed.

 

[Edmond Dantes]

I've been questioning this for the past few weeks. I've got a PPOR, small one, IO only with 100% offset. reason for this is that I know I won't be living here all my life.

If I don't have a deposit for an IP through equity but I have savings and ready to buy, I will split my loan, pay off some of the debt on my PPOR and redraw for the next IP acquisition, making this portion deductible.

But it's been a struggle to convince the wife to carry on with this option of "never paying PPOR". She's more conservative and like to do it the old way. I hope I'm right with what I'm doing, because seeing the debt always the same has questioned my believes as well.

 

[kathryn d]

Our first home was just a cheap 2 bedroom mobile home on a rented lot. After it was paid off (2 years) we sold this to fund part of the build on our house. We never had a mortgage on this house, but we did take a personal loan to finance finishing off the interior.
Eight years later we sold this home and bought a larger one, which meant taking a mortgage. We paid this off in 5 years.I was 35. We continued to save our mortgage payment.It felt wonderful to own our home again, free and clear.
About 10 years later we took out equity from this house and used it to fund rental properties.

 

[Rixter]

So you must be paying down this non deductible debt and borrowing against equity to invest.

No Im not paying down this non deductible debt. Im borrowing against the increasing equity in our PPOR & Investment Properties brought about from the rising Capital Growth.

I don't think you understand what I am saying - or I don't understand what you are saying.

I understand what you're saying. What Im saying is I can create more capital growth a lot faster by allocating my PPOR non tax deductible loan principle payments towards the holding expenses of additional IP's than what Im saving in tax deductions using your method of debt recycling. Does this clarify what Im meaning?

I would never use a LOC other than for borrowing equity to invest. If you were to ever move out of this house and rent it the loan may be large but the deductibility of the interest destroyed.

I have 2 LOC's secured against our PPOR - 1 for Personal use & 1 for Investment use only. We will not be moving out and converting our PPOR into an IP.

If we ever wanted to pay out our non tax deductible PPOR mortgage in the future we then have the options to debt recycle or selling an IP to pay down the loan.

By paying it down in this manner we are using past capital growth income created from thin air instead of our own after tax PAYG income that was generated by selling our time (& physical exertion) to an employer many years earlier via the debt recycling method you've outlined.

 

[Terry_w]

No Im not paying down this non deductible debt. Im borrowing against the increasing equity in our PPOR & Investment Properties brought about from the rising Capital Growth.

I understand what you're saying. What Im saying is I can create more capital growth a lot faster by allocating my PPOR non tax deductible loan principle payments towards the holding expenses of additional IP's than what Im saving in tax deductions using your method of debt recycling. Does this clarify what Im meaning?



I have 2 LOC's secured against our PPOR - 1 for Personal use & 1 for Investment use only. We will not be moving out and converting our PPOR into an IP.

If we ever wanted to pay out our non tax deductible PPOR mortgage in the future we then have the options to debt recycle or selling an IP to pay down the loan.

By paying it down in this manner we are using past capital growth income created from thin air instead of our own after tax PAYG income that was generated by selling our time (& physical exertion) to an employer many years earlier via the debt recycling method you've outlined.

You could still be doing all this and paying off the home loan sooner.

 

[Rixter]

You could still be doing all this and paying off the home loan sooner.

How much do I need to have sitting in the offset account to start doing it tho?