The Paradox of Debit and How You Can Own Your Home Sooner with Less Pain!

It is Rare that Newly Weds ever do the numbers when they buy their first Home. Mostly they rely on others whom they mistake as their friends to do the calculations for them.

Regardless of how friendly a Real Estate Agent is they are the one person who is definitely NOT a prospective home buyer's friend. The title "Agent" is a clear give away signifying that they are representing the interests of the Seller with whom they have contractual arrangements. Even if they wished to work for a home buyer they are legally bound not to. And if they do adverse legal consequences would result.

Next on the list is your friendly Bank Manager or Mortgage Broker - who favor their own interests and that of the Lenders over those of the lambs being led to the slaughter home (house). Have a look at the real numbers borrowers are faced with and consider how much the lender and loan brokers/bankers make at the expense of a home buyer who takes on the burden of a home loan.

Let’s consider an example:

* Average Home Loan of $250,000 for a term of 30 years @ 7.0% p.a. interest.

* Yearly repayments = $20,146

* Total Interest = $350,000

* Total Repayments = $600,000

1. Ever wondered how much you would have to earn to pay for that?

2. In the USA although in most instances home loan interest is tax deductible the principal repayments are not. Which means in order for you to earn enough money to retire a $200,000 home loan you must earn $284,000 to $333,000 - depending on your tax rate, so you have the principal of the debt paid down.

   Consequently you need to earn more than 3 times what you borrow as a home mortgage in order to own your home!!

3. How fair do you think it is for you to have to earn well over $600,000 for you to pay off a $200,000 home loan?

(the illustration drops the size of the home loan to make it easier to look at the cost of repaying just the loan principal - grab a mortgage calculator if you wish to see the numbers for your own home loan)

Although in most cases home buyers take out a 30 year mortgage, on average they move house every 6 years. In that initial period of a home loan most of what is paid to the lender is interest and there is very little principal repaid. Which means just about every 6 years a new 30 year home loan is set in place - and so the borrowers end up paying for their home mortgages for a lot more than 30 years.

The plight of the next generation - today's Millennials - who wish to buy a home is exacerbated by their need to first save enough money to put down as a deposit. This is estimated in today's economy to take approximately 10 years - but if real estate prices rise it will take even longer. Young families are looking at least at a 40 year journey to home ownership.

There are far too many issues to deal with all aspects of home ownership here. By far the most important is how to substantially reduce the cost of home ownership - which can be achieved by paying off your home loan as soon as possible. 

Relying simply on one's income and savings simply will not cut it - unless you are fortunate to be a professional or other high income earner. For the average person though they must take another route.

Paradoxically in order to rid yourself of home loan debt you need to take on more debt. No this does not mean going wild with a credit card or car lease and lavish holidays or grabbing all the latest household accessories on Hire Purchase. What it entails is obtaining Capital to invest. All other type of increase in Debt will retard your ability to become debt free quickly. 

It requires dedication and persistence towards the task of achieving your goal - and with the right type of guidance and assistance it is possible to own your home outright in less than 5 years - often a lot sooner provided you follow directions in a timely and correct manner.

There are many types of investments to choose from. However if you listen to your stock broker or most financial planners they will lead you astray. Even real estate investors and gurus will put you on the wrong train when they recommend that you build a property portfolio. With all of those types of recommended investments it is a slow road to wealth creation - Yet, that is where even the Government wants you to travel - as most of the regulations severely inhibit the ability of those with the Holy Grail from telling you about the only true and sure way to make money rapidly. (Unfortunately there are many scammers out there from whom you need protection - but that necessitates shielding you from the opportunity to become exceedingly wealthy in a very short period of time or just becoming debt free.)

Fortunately, as I have no investments that I wish to sell, you are at least able to gain an insight in to how you can retire your home loan quickly and to retire yourself early with more money than you need to live on for the rest of your life.

As mentioned above you will need to borrow money for investment. On a number of occasions clients have sold their homes in order to obtain initial investment capital to accelerate the wealth creation process. However for most people who have the home in which they prefer to stay long term that is not necessary - as long as you grasp the two most important concepts of how to make money investing.

First, you should stop throwing away money. The less you throw away the more you have available to invest - and on which to leverage capital in order to be able make bigger investments. For example, say you save $20,000 in tax which you invest - that should result in a bigger end sum than if you only were to save $10,000 to invest.

Second, is the concept of leverage. Instead of simply investing only the $20,000 you can save (don't worry about how you can do that as if you partner with myself it can be done for you) - leverage up your capital using your savings in either of two ways. You could simply put down the initial amount as a deposit and borrow three or four times that in order to have an investment of $100,000 working for you. Clearly that should yield a much bigger pie than if you start with less than a quarter of the size of your possible initial investment.

The other approach to leverage capital is to not put any money down as a deposit but simply use the $20,000 to service the interest expense on investment borrowings. The size of the capital investment you are able to make depends on the interest rate: if it were say 5% you could be servicing an investment loan twice the size of what you could manage if the borrowing interest rate were 10%. (Can you work out you could carry an investment loan of $200,000 in the latter case or $400,000 in the former?)

There are other elements which must also be considered - namely the preference for Interest Only Finance - as principal installments reduce the servicing capacity, draining away funds which should be applied to making money instead of paying back money. Also, there is no tax deduction for principal repayments - so the amount of tax you save is less, which in turn limits the amount of extra money available for your investment program.

Most readers should be somewhat curious as to what investments they can make in the above type of plan. While there are few restrictions on the actual places you invest in there are definite preferences. One could in fact be your own home - as that can qualify you for up to $500,000 ever two years tax free.

Another preferred set of investments is in houses suitable for wholesaling - where you turn them over quickly to make capital gains instead of holding long term for rental income and slow capital gains. A big element in real estate wholesaling which most property flippers are weak on is managing the tax on short term profits. Unless you are wearing your smart cap - or have myself as your managing partner you undoubtedly will be on a much slower boat to China and to wealth creation. 

By working the two components together - 1. Not Throwing Away Money, and 2. Capital Leverage - you will achieve your financial goals more rapidly.

Note: this is not a set and forget investment that you can just put money in to and let someone else do everything - it is a business (part-time or full-time) in which you roll up your sleeves, have an active involvement in making decisions and actually doing some work. (*I am not interested in obtaining money from Lazy Investors - but instead rather have people without much starting capital who are not afraid of the boogie man and who do not believe that the world owes them a living.)

If you have a financial goal, be it to "own your home" sooner rather than later, "earn a six figure income" or "create a massive amount of wealth" - regardless of your immediately available capital -  I am prepared to Partner with you!

Contact me asap with the Lead Sentence Commencing with the word " PARTNER"

(*obviously if you can not follow that simple instruction you will not qualify)