Stepping up the Acceleration process!
Ok..so you’ve managed to implement all of the strategies in Stage 1, paid down your mortgage to a level where you have 20% equity in your residential property and are feeling pretty confident about things.
Maybe you’re at Stage 2 already. Either way you’re now in a position where you can increase both the mortgage acceleration and wealth creation process.
Stage 2 involves continuing with everything implemented in stage 1, however, it now incorporates the acquisition of income producing assets. For the sake of the exercise, we’ll use the acquisition of an investment property as it’s an asset that produces a regular monthly income and provides some excellent “non cash” tax deductions.
Other investments such as managed funds, property trusts or direct shares could be used, however, they don’t tend to distribute income as regularly, which reduces their effectiveness.
To acquire the investment property, it would be preferable to have around 30% equity in your residential property (it can be achieved with just 20% equity). Your deposit for the investment property will come from this equity.
Once you obtain your investment property…..
(1) Direct all investment income and the associated tax refunds directly to the redraw or offset account.
This is simply a continuation of what you’ve been doing through the other steps. All income is to be used to reduce the daily mortgage balance and effectively reduce the amount of interest that is charged on each mortgage payment.
The loan repayment associated with the investment loan will come from either the offset or redraw account every month.
It’s important to organise a PAYG variation to ensure that the associated tax refund that you’ll obtain from holding an investment property is returned to you on a weekly basis to ensure that you can direct this money towards the mortgage.
On top of the fact that you have extra income working to reduce your mortgage balance, you now also have an extra asset that is creating capital growth and improving your overall asset position.
Also, the associated rental income is increasing each year, providing more income to be directed towards the non-deductible residential mortgage accelerating the process further. Directing this extra income towards your mortgage balance could quite easily take another 5 years off your mortgage and continue to save you an absolute fortune in interest.
(2) Keep acquiring Investment assets
As you quickly pay down your mortgage balance, and your residential and investment property keeps increasing in value, you will create surplus equity which will enable you to repeat the process. Once again, this accelerates the mortgage reduction process and continues to generate wealth for you.
We know from experience that there’s no reason why the average family can’t be getting close to owning their residential property outright in around 10 years and at the same time have 2 to 4 investment properties generating a positive cash flow for them and growing their wealth while they sleep.
What sort of freedom would that allow you to have in your life?
If you think of a Snowball hurtling down a mountain continually growing in size with every revolution you’ll get an idea of the effect!
As you reduce the balance of your mortgage, each dollar that’s paid off your mortgage pays down a greater percentage of principal. The mortgage reduction is substantially quicker in year 5 than in year 1 and in year 10 almost every cent of your mortgage payment would be reducing your mortgage balance…if you still have one!
Then think about the fact that your property portfolio, including your residential property, should be experiencing capital growth on an annual basis.
How we can assist you in achieving this outcome?
As you can see the above is a multi step process and all steps need to be incorporated to make it work. It’s vitally important to ensure that all the loans are structured correctly and the PAYG variations are calculated in the correct manner. We are able to assist you with all of the following stages if required:
– Budget preparation & Monitoring
– Plan design and implementation
– Debt Consolidation
– Loan Structuring
– PAYG variations
– Investment loan structuring
– Assistance with acquiring or building suitable investment properties