Many homeowners resign themselves to carrying the burden of a 30-year home loan. However, there is an alternative approach that can help you pay off your mortgage in a significantly shorter time frame, potentially within a third of the usual term. Best of all, this strategy doesn’t require any additional loan repayments. In this article, we will explore a method that leverages the equity in your home and investments in positive cash flow properties to expedite the repayment process.
The Strategy:
By utilising the equity in your home, you can secure a loan to invest in a positive cash flow property. Let’s say this property experiences an annual growth rate of approximately 7%, generating weekly cash flow ranging from $100 to $400. The positive cash flow from the investment property can be directed towards paying off your mortgage. Over a period of around seven to ten years, as the investment property appreciates in value, you can sell it and use the proceeds to pay off a significant portion, if not all, of your remaining mortgage balance.
Expanding Your Portfolio:
If you have sufficient borrowing capacity and equity, you may even consider investing in multiple properties, which can expedite the process of building equity and paying off your home loan even faster.
Market Insights:
Historically, most capital city property markets have averaged close to 9% annual growth over the past six decades. These markets tend to follow a cyclical pattern, with approximately seven years of booming growth, often reaching nearly 100%, followed by a flat phase of about seven years with minimal growth. During this flat phase, rental returns and affordability gradually recover. Currently, different markets are at various stages of this cycle. For instance, Sydney has just completed a boom phase and is expected to experience approximately seven years of poor growth, accompanied by low rental returns and reduced affordability. On the other hand, cities like Brisbane, Adelaide, and Perth are in the early stages of a boom, offering rental returns that are 50% to 100% higher than Sydney.
Over the next 7-10 years, it is projected that these three markets will experience 60% to 100% more growth than Sydney, along with significantly higher rental returns. Therefore, for every $1,000,000 invested in property, the potential total growth and rental returns could range from $800,000 to $1,200,000!
Building an Investment Portfolio:
Once your home loan is paid off or significantly reduced, you can consider further investments to build a diversified portfolio, which can serve as a foundation for your retirement.
Risk Management:
It is essential to recognise that this property strategy involves assuming more debt in the short term, which inherently carries additional risk. Therefore, it is crucial to assess your comfort level with the increased loan repayments and develop strategies to mitigate potential risks. While positive cash flow from the property will typically cover the expenses, it’s prudent to be prepared for scenarios where interest rates rise faster than rental returns, unexpected vacancies occur, or unforeseen costs arise. Implementing risk-management tactics such as maintaining a cash buffer, acquiring adequate income protection and life insurance, and utilising reliable property research to identify suitable investment areas at the right price can help safeguard your financial position.
Incorporating a strategic approach to accelerate home loan repayment can revolutionise your financial journey and lead to a brighter future. By leveraging the equity in your home and investing in positive cash flow properties, you can potentially pay off your mortgage in just 7-10 years, without the need for extra loan repayments. However, it’s essential to be mindful of the associated risks and implement proper risk management tactics.
Seeking professional advice from a knowledgeable property investment advisor is highly recommended to navigate this path successfully. With careful planning, diligent monitoring, and informed decision-making, you can pave the way to achieving mortgage freedom sooner than you ever imagined. Take control of your financial well-being and embark on a journey towards a better and more prosperous life.