It’s all like baking a cake, if the recipe is correct, success is assured.
Step 1: Begin With Your First Home
Start as early as possible. This will not likely be your dream home, but it’s a starting point, it is a store of wealth and a way to have a forced savings plan. And when you sell it, no capital gains tax applies.
Pay whatever spare money you have off the loan, to create more equity and as a safety net.
Once you have enough equity, it will be possible to use that equity to buy an investment property.
Step 2: Buy An Investment Property
Use your first home as security to borrow 100% of the cost of the investment property. This maximises your tax deductions.
The net rent (after agents fees) + the tax variation tax refund would mean the property more than pays it’s own way. If done correctly, it would run with a cash flow surplus even after paying the bank interest, rates and insurance. Canterbury have expertise in which properties work this way and how to structure it all. Only some properties work this way.
It is important to pay off non tax deductible loans (i.e. the loan on your owner-occupier home) before paying off investment debt. Non tax deductible debts are real killers that steal decades from the progress of many people. Canterbury implement a structure whereby the rent and tax variation incomes help pay off your owner-occupier home first. Typically a 20 year home loan gets paid off in 3 to 4 years.
Once your first home is paid off, you would pay off the first investment property next….then the second investment property etc
Step 3: Build A Property Portfolio
Buy more investment properties. As cash flow and equity increase, you can add more properties to your portfolio – and each property you add, exponentially increases its own cash flow and capital gains – and accordingly the new properties can be used to own even more new properties. On and on it goes. This should all be done in a considered, safe manner with appropriate lines of credit built in as a safety net to cover all contingencies. We realise “Murphy’s Law” lurks in the background, so we remain prepared for that.
The ever increasing equity can also be used to acquire passive income sources apart from property – and those new incomes can be used to lower the property loans even faster.
Along the way, the new equity and cash flows can be used to buy bigger and better owner-occupier homes. This is now the time to buy the dream home, then the next dream home.
The ever increasing cash flow can be used to buy luxuries, holidays, cars, boats, school fees etc. Now is the time of the reward.
Step 4: Balance Your Portfolio On Retirement
When you retire, the rents and acquired passive incomes become your main income. If you started this plan too late you might have to sell one or two properties to pay out some loans to increase your income. However if you started early enough there will be no need to sell anything. Many people retire decades before they would have otherwise, on far higher incomes than they would have ever expected.