Coming from a property investment background, I know how property can help you repay your mortgage earlier and grow long-term wealth.
When I am talking about property investment, I mean long-term investment;
Purchasing a property and renting it to a tenant who pays your mortgage for you. Meanwhile, you take the capital growth over time with a hands-off approach. This creates a lower risk profile than anyone trying to speculate or time the market over a shorter term.
Most people can understand that property grows in value over time, just look at what your property was worth 5, 10, 20 years ago and compare it to now. However most people also do not understand how to utilise the opportunity, often thinking they cannot afford an investment or simply don’t know where or how to start. This is where getting sound advice from professionals comes into play.
Getting the right accountants, property managers, mortgage advisers and even real estate agents, can make the process a whole lot easier and more profitable at the same time.
A couple of things that make property investment a good option:
Not only is the tenant paying the mortgage on the property, but you might not need to put any of your own savings into the investment either.
You can often use the bank's money for 100% of the purchase price (if you have already paid down your own mortgage enough and can afford the debt).
This maximises your potential gains and means you can focus on reducing your own personal mortgage (or using your money in more beneficial ways).
If you did need to invest some savings for your deposit, and say you have $120,000, you could potentially buy an investment property of $400,000 (or up to $600,000 for a new build due to LVR restrictions of 70% and 80%+).
That means this new asset worth $400,000 is increasing in value (not just the $120,000 savings that you initially invested).
Say this new property increases at 6% per annum (historically this is reasonable based on REINZ data), that is $24,000 per year on average (and this compounds too).
If you invested your $120,000 in shares and returned a massive 15%, that is still only $18,000, for potentially a higher risk investment in shares.
This just shows that you may be able to grow wealth with a hands-off approach, that in turn can be used to repay your own mortgage faster, or simply grow your wealth passively through the use of the right professional help and advice.
If you want to discuss your options and see how I can help you structure your investment debt for maximum benefit, please get in touch.
This is in no way supposed to be financial advice, as everyone's situation is different and should be reviewed in full. These are simply personal views on property investment backed by some market data from REINZ.
Chad Adair
Financial Adviser, specialising in Mortgage Advice.
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Adair Mortgages are leading mortgage advisers in Christchurch, Queenstown and Wanaka. Give Chad a call today!