Why so many people do not want to pay off their mortgage but only care to borrow more money for IPs

Hey Skater,
I was coming from the viewpoint if you had a portfolio of properties, and you were looking to offload 1 or more, which would you sell....
Dont just sell cause property x has grown.

Agree that there is a risk if all your properties are in 1 area. Don't keep all your eggs in 1 basket.

And if you sell, do it to get yourself out of a jam or if you know there's another better investment that the money can be used for. Agree totally!

And yeah. I was a bit too strong to say "never sell". I was thinking sell the duds first though!

 

That's why I think its so important people get their property selection right so they are not confronted with a situation down the track of do I sell this underperforming property to release equity or reinvest or not. Personally I believe much of the mistakes investors make with property selection can EASILY be avoided if they educated themselves a bit more and increased their focus a tad. Its so easy to avoid properties that have a high likelihood of underperforming. Yet, investors buy them over and over again.

Unfortunately the reality is many ppl do buy properties that aint gonna get them to their goal so the investors which wizen up down the track then realise it may be best to sell 1 or 2 that really have very, very little chance for CG in the foreseeable future, and reinvest that capital in 'smarter' markets.

 

@paper

i must disclose that I don't have PPoR so i don't pay mortgage and i purposely not read what other members said.

Instead of buying PPoR, we started buying IPs with view of development.

we currently hold $3.4M stock, with view of potential to develop in to $6M

$3.4M @ min 20% profit margin= $680K
$6M @ min 20% profit margin = $1.2M

i can tell you if i would have bought PPoR, i couldn't;t have achieve above numbers.

On other hands.
Two of my friends bought PPoR 4 years ago, they are paying off their mortgage,let;s assume they paid of their mortgage by 50%

So, 450k original purchase,
current mortgage: $200K (paid off $250K)
revalue of PPoR; $650K

Total cash available: $450K ($200K profit, $250K cash)


this is a real life story!!!

by not buying PPoR or not paying mortgage off, it allowed us to acquire more properties.. for me it;s a volume game at early stage of investing!

 

I am happily converting my non-deductible interest debt in my PPOR over to a interest deductible LOC for investing in more IPs.

That on top of creating more LOCs for investing from the IPs. I know what I'm choosing to do and why, I have a strategy that is designed with me and my family in mind, others may not agree with it, so be it, it's a strategy which also incorporates solid fundamentals, intensive research and analysis, as much due diligence without creating analysis paralysis.

I learned over a decade ago when I went into business for myself, that is a massive risk with all sorts of dynamic factors which play out daily, NOT every few months or years, DAILY. Property investing and the risks associated with the financial aspects of leverage is a breathe of fresh air in comparison.

Do you realise that for some people who have bad health, waking up in the morning and going to take a dump comes with the risk and the real possibility of killing them.

I personally don't watch the news, it's negative and driven towards sensationalism rather than good, solid reporting, therefore I choose to get my news from feeds, no personalities involved, just data, just news, I can then get on with my day and make decisions accordingly.

Do you realise there is NO END? Just a perpetual transition of energy from one form to another.

Do you realise there is as much positive impact that can, will and does happen when negative events occur.

Maybe not for you, or even me, but for someone, somewhere, it is created, the opportunity is born from the ashes with an idea and grown into a full fledged opportunity for positive change and then growth occurs.

Someone once said to me years ago, fear is not real, danger is very real, decide which is which and you can act accordingly.

Your comment is fear based NOT danger, because so many parameters come into play, risk mitigation, leverage, buffers, existing and future liabilities, lifestyle expectations and choices, not to mention all the other fantastic reasons people have already put forward.

Work on your confidence, build an impenetrable mindset, get use to making decisions, some win, some lose, we still move on in a forward direction, adapt and overcome, and no matter what, keep getting back up.

Oh, and remember, one day you could be taking a dump that transitions your energy to the next form, so take care of your number #1 asset, your health.

 

+1

 

I sleep well at night knowing my properties are positively geared, the rental income plus deductions covers the outgoings holding costs. Plus I minimise risk by ensuring all properties are appropriately insured not only for physical damage but also landlord insurance. If the economy tanks it's not game over, it means my tenants will be even more long term then before. It would mean capital growth may be affected however I hold long term so I plan to have to ride through the property cycles during this journey. I keep a healthy cash balance in my offset account for a rainy day. All of my loans are IO so I am not paying down the principal however I am still in the acquisition phase so this is all part of the plan.

 

I know what you are saying but.....let's take a look at a couple of mine.

So......I've got a few (less now ) in Sydney. I've also got stuff elsewhere. Most of our stuff pulls in a decent yield, however the Sydney ones have much more equity in them due to the recent boom.

Sitting down & looking at the portfolio we decided what to sell & what to keep. We've got a few in Regionals that have had a slow growth, but a very strong yield. We want to keep them. The cashflow will be good moving forward into retirement.

We've got other stuff in areas that are just starting to move. Heck....we don't want to sell them!

Then we've got Sydney! Hmmm.....nice juicy growth there! We picked out the ones that we wanted to sell, based on what we want in the future, and earmarked the rest to sell. Why? Well....the market WILL correct, so let's do it now. Also there will come a time when we may buy back some more, but we will do it in a buyers market, not a sellers market. Also, the funds from the sales are going into offsets on other properties, which will, in essence pay them off, leaving us with a nice income to LOR.

 

Wash your mouth out with soap...did your really utter the "c" word....."correction" and Sydney together......the great unwashed will come after you with tomahawks now.....

 

At least she used the "c" word "correction" not the other "c" word "crash".

 

I certainly did! BUT it can wait until I'm finished selling.

Ooh, don't swear! I'd never use THAT "C" word.

 

If selling your prime property/properties would pay off the debt on the rest of the portfolio, allowing you to retire and LOR, what would you do?

Could also argue that the growth in the prime properties may stagnate (ie might not keep growing) but radiate to the properties held in less prime areas.

Have a read of MTR's posts - harvest while you can!

 

Yeah, I'm just not quite at that stage yet.

 

This is exactly right! And the beauty is that we'll be keeping some of the 'prime' properties.

 

The venom expressed by many 20 somethings on other sites and the comments section of any property news story is amazing. Their desire for a market crash is strong but I doubt many would be brave enough to act.

 

It's not just the 20 somethings, although in general they are more vocal. For instance, this is a quote from a woman I know who is in her mid-late 60's, is on the pension, has a part-time job, lives with her defacto in a rental, which is below market rent AND has her own Housing Department unit (sitting vacant, but she won't give it up). She owns a car and bought a brand new Harley Davidson motorbike and thinks nothing of spending over $1k for a pair of skates.
"I want a place of my own, where I don't have to worry about stalking, greedy, selfish landlords. I hate having filthy rich landlords dictating how you live. These rich idiots who live the life of a show pony really pi$$ me off."

Now, correct me if I am wrong, but the age pension is there to provide food & shelter for the elderly and not to fund lifestyle choices. She, and many others made a choice in life, and spent their money the way they wanted, and now, as a retired person, there is nothing left except the aged pension.

So...many of these 20 somethings will end up in a similar position if they don't DO SOMETHING to help themselves in later life. Of course, some will, but I'm speaking about those that don't. They will keep on whinging about it all being someone else's fault until the day they die.

 

100% Agree and well said Skater!. It's really a very serious predicament to be in IMHO and so, so many people just don't seem to be afraid of the end reality. When ppl are still young they have options to avoid this situation. Well as the saying goes, we will only be able to reap later what we have sown earlier. No more, no less.

 

I am proud of two facts:
1) I will never be entitled to the aged pension when I am old enough to receive it; and
2) I sacrificed a lot over several years to get where I am today with a lot of hard work and maybe a bit of stubborn determination.

My end goal is to be financially self-sufficient living off passive rental income acquired by not paying down my mortgage and using equity to borrow more money. While some of my friends think I am being greedy borrowing so much, my mindset is the oppositive. I am not going to be a burden on an already stressed government welfare system when I eventually retire from the workforce.

 

That is a high goal and hope you achieve it.

That is my ultimate goal but I feel it would be my rent and super to give me a comfortable lifestyle.

 

That quote shows so much about her mindset, internal beliefs and money script. If she uses adjectives like that to describe people who are wealthy and own property there's no way she ever will - if she did, she'd be just as filthy, greedy, selfish and idiotic as she perceives them to be.
Unless she changes the way she thinks about rich people, she'll be poor forever.