Did you know that a property investment strategy may help you reduce your residential property’s mortgage faster? At Advantage Consulting we work with professionals in the Australian property market and many of our clients who have gone on to purchase an investment property have managed to reduce their mortgage or pay off their mortgage altogether.
As with any investment, there are ups and downs, but the never-ending population boom in Australia, combined with the country’s status as having some of the world’s most liveable cities, fuelled this growth and there is expected to be significant population growth for over at least the next 35 years(ii).
Matt and Jess are both in their 30s and have a residential property that they have a 30 year home loan on. They have one daughter, Julia, and are planning on another child in the next few years. Both Matt and Jess are working and have a combined salary of $150,000.
Matt and Jess decide to invest in a property in a growth area in Melbourne. They are fortunate that their family home has increased in value since the time they purchased it six years ago. They can refinance their existing residential property, freeing up some equity, as well as adding some savings to fund the deposit of $100,000 for a new property. The investment property is worth $500,000, so they borrow the remaining $400,000.
With current interest rates, the repayments on the property are about $17,000 per year and with other expenses the total costs for the property are $23,000. Matt and Jess have tenants who pay approximately the same amount each year, so they break about even on the property.
Over the next 10 years, the property that they have purchased increases by close to the average property growth rate in Melbourne over the last 15 years of 5%. It’s now worth just a bit over $775,000. Jess and Matt have increased their asset base by $275,000. Matt and Jess decide to sell their investment property to help pay off the mortgage on their home. Even after they pay some Capital Gains Tax, they have over $200,000 extra they can put towards reducing their mortgage.
Of course, there are risks involved with property investment. The above case study is based over the last 15 years of data which has seen strong property growth and a low interest rate environment, which have meant that those in the market have typically done well.
If you would like to find out more on how property investment may help reduce mortgages, please download our free property guide.
You should assess whether the information on this website is appropriate to your particular investment objectives, financial situation and investment needs. You should do this before making an investment decision on the basis of the information on this website. You can either make this assessment yourself or seek the assistance of any adviser.