I hate debt.
Unlike other property commentators or developers, I don’t enjoy taking on debt at all. In my personal life I strive to have no debt and in business we have no debt.
However, in the property projects division, we have debt, especially in the construction or revaluation stages.
It doesn’t mean I like it!
(This is where all the good debt vs bad debt spruikers chime in.
This week I had the opportunity to have a strategy session with one of our clients. I thoroughly enjoy strategy sessions and they always go way longer than they should.
Time flies when you are having fun…
This client was in a great financial position and was ultimately looking for someone to support their view of the things they wanted to do. This is the case with many of the sessions I enter, and rarely do I, 100% come to the same conclusion the client does.
However, this time was different.
The difference is their strategy sticks close to my heart.
Getting out of debt.
This client was able to use their existing investment properties and restructure their portfolio to allow them a zero-debt position on their family home (PPR)
How exciting – paying off your own home.
Time to party!
How were they able to do this?
The hardest investing and purchasing work had been done already.
Purchase of PPR
Purchase of 1st investment property
These two things are by far, the hardest stages of building your portfolio.
The reason I focus on these two things, and not just your own home is while I am not a lover of debt, I understand it is difficult (impossible even) to purchase additional properties without it.
I like to ‘insert’ the investment property into the mix so that as capital growth happens, you have the option to draw your deposit for investment number 2, from investment number 1 and NOT your own home.
Many property strategists advocate redrawing from your own home, because it is the fastest way to accumulate more property.
Perhaps that is correct?
However, it is also the most risky.
Constantly drawing equity out of your PPR is a horrible strategy and is the fastest way to debt and destruction.
Think about it. Your exposure with 4 investment properties, deposits all drawn down from your own home, means that each property is highly leveraged, but so is your PPR.
As soon as something goes wrong, the bank will step in and sell the easiest assets, and 11 times out of 10, that starts with your PPR.
If you took a slightly different approach and put a bit more effort into the first investment property, choosing the right location or adding value once purchased, your subsequent deposits for investment purchases can be drawn from Investment Property 1 not your PPR.
This means that the investments or ‘Business’ side of your portfolio can be debt heavy, but you are focused on paying down and paying off your home.
(notwithstanding other strategies like debt recycling etc with the focus of paying off your home)
Perhaps this might be slower than drawing funds out of your PPR and going on a shopping spree. It is a whole lot safer and helps with sleeping soundly at night.
What price can you put on that?
Your definition of wealth and success will include things that aren’t money. It just so happens that the ‘money part’ is easily measured and we happen to focus on it.
Happy relationships, strong minds and healthy bodies go a long way to adding to your life success.
Its not all about money.
Take a safer route, move with more precision, pay off your home and sleep well in your debt free bed.
The first two steps are the hardest..
Final Words..
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Since 2004, Scotty North has been helping people buy the best properties for their needs at prices that simply speak for themselves.
Scotty has been instrumental in bridging the gap between financial planning and traditional real estate transactions through his property advice model.
Scotty North is a Qualified Property Investment Advisor (QPIA), with accreditation’s in financial planning, mortgage broking and real estate.
By carefully considering his clients’ goals and planning for market changes via demographics and trends, Scotty designs a future proof outcome not only specific to the client’s needs but dynamic in its execution with performance indicators and exit strategies built in.