Just say you bought a $900,000 investment property and borrowed the full $900,000. Then never made a single payment and also put the rent in your pocket for 20 years.
If the capital gain was 10% and the interest rate averaged 7%, the position after 20 years would be:
Property value – $6.05M
Property Loan – would have grown/capitalized to $3.24M (In addition, the accumulated rent in your pocket would be about $1.32M)
We know of a Sydney person who understands this theory. They bought a harbour side mansion for $15M and needed an $8M loan with payments of $42,000 per month. Over 7 years, they never made a payment and allowed the $42,000 to accumulate (capitalize) on top of the original $8M loan.
THE SITUATION ON DAY ONE WAS:
Original property value – $15M
Original property loan – $8M
Equity – $7M
AFTER 7 YEARS:
New property value – $32M
New property loan – $12M
Equity – $20M
(By the way, they also drew $20,000/month tax free money from the equity line of credit to live on during the 7 years).
Just to clarify, their equity increased from $7m to $20m over 7 years without making a payment and while living off the equity.
We think that, in another 7 years, the position will be
New property value – $64M
New property loan – $19M
Equity – $45M
All that beats having a job, doesn’t it?
However, you need to become financially strong before these doors open to you.
That’s where Canterbury comes into it for you.
Of course at Canterbury we never allow the loans to accumulate as in the above examples. Using proactive techniques we pay the loans off, one at a time, as we go along.
At Canterbury, our intention is to make every loan balance become zero in the shortest possible time.