The end game

[willair]

This is because most people will find it hard to generate returns greater than their home loan.

There is always 2 roads you can travel on one takes you up hill real fast
the other a slow decline,maybe do a search in this site ,on a Lady named Brend'a,or See Change,Keith,Bill l,Rixter Dazz,there would be a best top shelf book just within those peoples and study inbetween their investment styles,or look up gearing on gearing in the right timeframe on the ASX..
..IMHO..

 

[china]

There is always 2 roads you can travel on one takes you up hill real fast
the other a slow decline,maybe do a search in this site ,on a Lady named Brend'a,or See Change,Keith,Bill l,Rixter Dazz,there would be a best top shelf book just within those peoples and study inbetween their investment styles,or look up gearing on gearing in the right timeframe on the ASX..
..IMHO..

These are surely elite investors and form the minority of investors by definition. Gearing on gearing can produce massive returns but for the average investor - gear on gear - will bring financial ruin rapidly.

 

[HotRod]

I find no evidence to suggest that the av aussie pays off their home at age 51. I would have thought late 30s and early 40s would see most people pay off their first PPOR. When you refer to age 51, I suspect that this is their second or third PPOR, in which case they need to live more frugally.

It is most likely the opposite.

People will always want to upgrade their PPOR as their income and lifestyle increases, thus their PPOR will never be paid off.

Paying off the PPOR to be debt free was my parent's mantra. This generation's and the next is to live beyond their means in the hope that they get a big inheritance to pay it all off.

But, paying of your PPOR will just make you go backwards. To get in front you should be leveraging off your PPOR for starters and you find that in some circumstances your PPOR can be debt free very quick.

 

[china]

It is most likely the opposite.

People will always want to upgrade their PPOR as their income and lifestyle increases, thus their PPOR will never be paid off.

Paying off the PPOR to be debt free was my parent's mantra. This generation's and the next is to live beyond their means in the hope that they get a big inheritance to pay it all off.

But, paying of your PPOR will just make you go backwards. To get in front you should be leveraging off your PPOR for starters and you find that in some circumstances your PPOR can be debt free very quick.

This assumes that the investments that you make earn a high rate of return. If your investments tank, then you will never be able to pay off even your first PPOR which would be a greater disaster than if you had never invested.

 

[MsAli]

This assumes that the investments that you make earn a high rate of return. If your investments tank, then you will never be able to pay off even your first PPOR which would be a greater disaster than if you had never invested.

China, apologies in advance if it comes offensive. But it would be more beneficial to see how it's possible as opposed to arguing what makes it impossible. Many who have acquired massive portfolios make it appear simple and I like it that way. I want to know what makes things possible as it's really a waste of energy focusing on why it can't be done. However often it comes down to that click of mindset shift...

 

[Melbournian]

obviously you got to be in to make it china.

if there is no risk and everybody would be making millions including yourself rocking up with a 20 year old blonde and wearing that rolex.

like in any card game you gotto be in it to get an outcome.

 

[HotRod]

This assumes that the investments that you make earn a high rate of return. If your investments tank, then you will never be able to pay off even your first PPOR which would be a greater disaster than if you had never invested.

Which is the attitude of 90% of property "investors" as they buy one property in the suburb they live because it looked nice and they would like to live there, only to sell up 12 months later after the property dips 10% in value and they are burning money in NGing. That why it is perceived as "risky".

Smart PIs do their research in out of the way places finding diamonds in the rough, DD, spread their IPs and make hard lined offers and then proceed to make money from day one and find it so risk free.

Hope and praying is not a sound investment strategy.

 

[china]

China, apologies in advance if it comes offensive. But it would be more beneficial to see how it's possible as opposed to arguing what makes it impossible. Many who have acquired massive portfolios make it appear simple and I like it that way. I want to know what makes things possible as it's really a waste of energy focusing on why it can't be done. However often it comes down to that click of mindset shift...

I agree with you totally that we need to focus on the positive and how it can be done. That is why we are on this forum. However, my point is that it may not be appropriate as general advice for everyone with a mortgage on their ppor to tell them not to pay it off but to try to invest for a high rate of return. I think the majority of people will do badly from this advice as their skills in investment will not allow them to make highly profitable returns. For a small number of people, it will be the way to go as they have the skills, diligence and perserverance to eke out a good return on investment.

 

[Angel]

China, you do realise that anyone reading this forum is NOT your typical Aussie who wastes their money paying for bigger and bigger PPORs and not knowing anything about investing. Most likely we want to know how to find the higher returning investments that exist out there. That is why we are reading this forum - we want to go way above "average".

 

[Graemsay]

I'm in agreement with China here (though not on the nubile blondes thing ).

If inflation is low and the economy is growing by 3% or 4% a year, then a decent return for an investment is probably on the order or 6% or 7%. This is about the same as the interest rate on a mortgage, but repayments aren't taxed so you'd need maybe a 10% return on an investment to come out ahead.

Anyone who can consistently get that should be sending their CV to City and Wall Street institutions. Most professional fund managers fail to generate these sorts of returns, particularly over a long period.

I know that people have done very well with investments, for example Kristine's Mission Brown Wonder, Hobo-Jo's pot of gold, and various mining shares. But did the entire portfolio show these levels of growth?

It's all very well focusing on the positive and inspirational, but knowing how to make something consistently repeatable is much more interesting.

 

[ok180]

Im kind of in agreement with China. Depending on the stage your at it can be beneficial to pay off as much of your morgage as possible. For instance with my wife and I at the moment we just got married 2 years ago and our PPOR is worth around 600k. We're going hell for leather trying to pay as much off as possible because we want to start a family soon and we'll then be in the market for a bigger PPOR in around the 1 mil mark. If we don't try and smash our mortgage down now but choose to invenst in IP's for the next few years we're not going to have the lifestyle we want once we have a family.

There's times when you should be knocking down your mortgage and other times when you should be investing more. It's all about balance, if we were some kind of investing mutant (no offence to the mutants on here) that wanted to just live frugally and invest everything then yeah we might be ahead done the track but I wouldn't want to sacrifice everything for the short term either.

 

[willair]

I'm in agreement with China here (though not on the nubile blondes thing ).

If inflation is low and the economy is growing by 3% or 4% a year, then a decent return for an investment is probably on the order or 6% or 7%. This is about the same as the interest rate on a mortgage, but repayments aren't taxed so you'd need maybe a 10% return on an investment to come out ahead.

Anyone who can consistently get that should be sending their CV to City and Wall Street institutions. Most professional fund managers fail to generate these sorts of returns, particularly over a long period.

I know that people have done very well with investments, for example Kristine's Mission Brown Wonder, Hobo-Jo's pot of gold, and various mining shares. But did the entire portfolio show these levels of growth?

It's all very well focusing on the positive and inspirational, but knowing how to make something consistently repeatable is much more interesting.

You could always look at it from another angle,a stand alone day trader does not carry the baggage that the high end companies carry,and if you were to cut out the upfront win or lose fees you pay that would add a few% on the total %TLS TLS fully franked is above 10% a few high end Banks would be above 9% franked,and i'm not talk about the wackers in Aussie Share trading sites,even when they post they buy 1 mill plus 4 cents dropkicks start-ups miners when you check the time of their trade and numbers it never shows up in the data that i get my hands on so we will leave it all there 10% is normal,anything above that is there for the taking..

 

[Brady]

Im sure there is some confusion here.

Yes PPOR debt should be repaid, your extra funds should go towards paying down your non-tax deductable debt.

But that doesnt mean that you should be having your PPOR title sitting in your lap.

Extra funds should go towards reducing PPOR debt, at the same time you should be using the PPOR equity to continue to invest.

You still will have debt secured against the PPOR but it will be aginst investment and tax deductable

 

[china]

China, you do realise that anyone reading this forum is NOT your typical Aussie who wastes their money paying for bigger and bigger PPORs and not knowing anything about investing. Most likely we want to know how to find the higher returning investments that exist out there. That is why we are reading this forum - we want to go way above "average".

Angel, I agree. I too want to join the league of elite investors who achieve greater than 7%. p.a. return. However, most of us are not going to make the grade. We can't all be olympians nor nobel prize winners. Therefore, it is not bad advice for the general readership to pay down their PPOR before trying other manoeuvers. Safety first. Having a roof over the head is one of the cornerstones of personal, social and financial security.

 

[monalisa]

Angel, I agree. I too want to join the league of elite investors who achieve greater than 7%. p.a. return. However, most of us are not going to make the grade. We can't all be olympians nor nobel prize winners. Therefore, it is not bad advice for the general readership to pay down their PPOR before trying other manoeuvers. Safety first. Having a roof over the head is one of the cornerstones of personal, social and financial security.

I just remembered a Henry Ford quote, "whether you think you can, or you can't, you are right."

 

[MIW]

Angel, I agree. I too want to join the league of elite investors who achieve greater than 7%. p.a. return. However, most of us are not going to make the grade. We can't all be olympians nor nobel prize winners. Therefore, it is not bad advice for the general readership to pay down their PPOR before trying other manoeuvers. Safety first. Having a roof over the head is one of the cornerstones of personal, social and financial security.

China,

If you wish to join the elite please read the book, "How to achieve Wealth for Life...through Property Investing!" by Tony Melvin & Ed Chan. I know I must be repeating myself here, I had mentioned this before but it is warranted.
There is a dedicated Chapter 7, "Myth 6ay off Your Home Loan as Soon as You Can" dedicated to what you are suggesting.
It really is an eye opener and a great lesson to learn. I realize it may be a generalized example but so simple to understand.

Not paying off any debt. So there's an example where:
1. They pay off the home AND after 30 years:
Result: $3.2 million in equity
2. They pay interest only on the home AND after 30 years:
Result: $2.9 million equity

Now most people would say to pay off the home but they go further because the next step is to use the amount saved on paying off the principal to help fund the shortfall on an investment property:

3. They pay interest only on home and IP and after 30 years:
Result: $6.4 million equity
The example shows that paying off your home loan can cost you millions in lost opportunity.

Their phrase is "The player focuses on increasing their asset base, not on reducing their debt".

This is just a simple long term strategy I think especially useful for our kids (people that have time to invest long term).

I strongly recommend for any novice investor to understand that principle. However, it's not for everyone, first one must understand, second one must feel comfortable with it and third one must act on it (not many people will, right?) I hope this helps!

 

[MIW]

Im kind of in agreement with China. Depending on the stage your at it can be beneficial to pay off as much of your morgage as possible. For instance with my wife and I at the moment we just got married 2 years ago and our PPOR is worth around 600k. We're going hell for leather trying to pay as much off as possible because we want to start a family soon and we'll then be in the market for a bigger PPOR in around the 1 mil mark. If we don't try and smash our mortgage down now but choose to invenst in IP's for the next few years we're not going to have the lifestyle we want once we have a family.

There's times when you should be knocking down your mortgage and other times when you should be investing more. It's all about balance, if we were some kind of investing mutant (no offence to the mutants on here) that wanted to just live frugally and invest everything then yeah we might be ahead done the track but I wouldn't want to sacrifice everything for the short term either.

ok180,
It's not a matter of investing everything but rather changing your P&I loan on your home to IO and then using the saved proceeds you would have otherwise put towards your home loan you use to buy an IP.
So now you own two properties. Then see the example I provided above...
No one can be forever frugal and we all wish to improve our lifestyle that's why we are investing in the first place, wouldn't you agree?
As I mentioned before you must understand that concept, feel comfortable with it and then act on it. But I will agree with you that it is not for everyone as we all like our tea or coffee in certain way.....

 

[redwing]

I find no evidence to suggest that the av aussie pays off their home at age 51. I would have thought late 30s and early 40s would see most people pay off their first PPOR. When you refer to age 51, I suspect that this is their second or third PPOR, in which case they need to live more frugally.

Hi China

At what age do you assume the average aussie purchases a PPoR?

Let’s say at age 25 you take the plunge and purchase a PPoR via a P&I loan for $150k over 25 years, at 6.50 % this is obviously a basic example sans deposit, FHOG, yada yada, also for the example, assume this rate stays the same over this period

If you make the required minimum monthly payments and pay in nothing extra, when you make your last repayment, not only will you have paid back $150k of principal, but also about $153.5k of interest as well

You are now 50 years old

Your PPoR maybe worth about $800-900k now, but so are all of your neighbours

Whats the next step?

 

[ok180]

ok180,
It's not a matter of investing everything but rather changing your P&I loan on your home to IO and then using the saved proceeds you would have otherwise put towards your home loan you use to buy an IP.
So now you own two properties. Then see the example I provided above...
No one can be forever frugal and we all wish to improve our lifestyle that's why we are investing in the first place, wouldn't you agree?
As I mentioned before you must understand that concept, feel comfortable with it and then act on it. But I will agree with you that it is not for everyone as we all like our tea or coffee in certain way.....

Your making the assumption that everything goes up in value all the time. There can be times when there is little to no movement in property and paying down non deductable debt is the best option.

We plan on having kids in the next few years and my wife will be off work for a while. Im going to be really happy knowing my home repayments are going to be less than if we had of purchased another IP and have to deal with our home mortgage as it is now plus the costs of another IP.

There's a time to leverage and a time to service debt. Now is the time to service debt I feel. The market isnt going anywhere fast in the next 5 years at least so what's the hurry to go on a debt binge now?

The example you used above is of PAST data, there is nothing to say that senario is going to play out exactly the same in the next 10 - 20 years. Property has in the past stagnated for very lengthy periods of time and I think that's the period that we're in for now. In 10 years time it could be the people who have been squirelling away their cash who end looking smart once real oppertunities start to present themselves again.

 

[oc1]

Your making the assumption that everything goes up in value all the time. There can be times when there is little to no movement in property and paying down non deductable debt is the best option.

We plan on having kids in the next few years and my wife will be off work for a while. Im going to be really happy knowing my home repayments are going to be less than if we had of purchased another IP and have to deal with our home mortgage as it is now plus the costs of another IP.

There's a time to leverage and a time to service debt. Now is the time to service debt I feel. The market isnt going anywhere fast in the next 5 years at least so what's the hurry to go on a debt binge now?

The example you used above is of PAST data, there is nothing to say that senario is going to play out exactly the same in the next 10 - 20 years. Property has in the past stagnated for very lengthy periods of time and I think that's the period that we're in for now. In 10 years time it could be the people who have been squirelling away their cash who end looking smart once real oppertunities start to present themselves again.

This ^^

Just about any strategy works when the market is rising. Blindly forecasting forward and hoping for price gains - not for me. There are certain times to load up on debt an have others to pay for it but this ain't one of them. Don't forget, a lot can go wrong during your 20 year wait, even if your analysis was correct.