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Thread: Building equity

  1. #1

    Default Building equity

    Hi all,
    Another question for you all:I am looking at purchasing first property and would like to know, Would it make sense for me to try and pay this property off as fast possible,so as to build up a large amount of equity for future investments?
    I do not have any property at all.
    All thoughts appreciated.
    Cheers, Taonga.

  2. #2
    Join Date
    Jun 2005
    Location
    Auckland
    Posts
    5,086

    Default

    Hi Taonga,

    Yes, pay it off as fast as you can - subject to a few other points.

    If you are paying off the principle on one mortgage, that cash can't be used to fund another one, so if you want to maximise your use of income to buy more properties in a shorter time frame, go interest only.

    However, if you have time on your side, and can afford the Principle and Interest (P&I) payments, then you will become debt free faster.

    There is an excellent thread on the Interest only -vs- P&I debate here.

    Hope this helps a little

    cube.
    DFTBA

  3. #3
    Join Date
    Dec 2003
    Location
    Hawkes Bay
    Posts
    1,738

    Default

    Would it make sense for me to try and pay this property off as fast possible,so as to build up a large amount of equity for future investments?
    Hi Taonga, that is one way and I think a very excellent way. In fact, probably the safest way there is. If you can do that - ie pay it off in full, the next one you buy will have two income streams which means paying it off quicker again. With each property you do this with, the more income and the quicker each will be paid off. I don't know of a safer way than this, even though it could take a little longer. It depends a lot on you risk profile as well. If you were tolerant of more risk, you could save deposits for other properties rather than paying down quickly the first loan. I would still go P&I no matter which way you do it.

    Regards
    Graeme Fowler

  4. #4
    Join Date
    Oct 2004
    Location
    Wellington
    Posts
    165

    Default

    You know you are old when you can say "I remember when interest rates hit 22% and for years sat at 10-12%, blah blah".

    Ok so I agree that at the tender age of 46 I am clearly old but ....... seriously you have the right thinking in your head - reduce debt.

    People have babies, change jobs, get laid off, change careers, get divorced etc etc. And interest rates and expenses go up and go down. If you can't financially weather the change then you are headed for a meltdown.

    I have never met a successful long term property investor who has done anything other than work hard and exercised caution.

    Buy, reduce debt, hold, keep holding, keep reducing debt. Buy when you know servicing the mortgage doesn't require you to continually put your hand in your pocket. 10 or 15 years from now you will be a very happy camper.

  5. #5
    Join Date
    Oct 2004
    Location
    Asia
    Posts
    44

    Default

    Hi Pixie and others.

    I have a spare 5k. do you think.....

    A. I should pay some principal on one of my shorter term rentals?

    or B. Upgrade another rundown prop to build equity on paper and increase the rental yeild?

    What are the ad/disadvantages of both senarios?


 

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