I was speaking to my office about some of our successful clients and while considering who I would put in that category some commonality emerged.
They almost always had two or more properties. How they acquired them varied: some upsized and kept their first home as a rental, others came from separations and brought a property each into the new relationship, and some simply purchased an investment property along the way.
They all had good cash flow or monetary discipline. By this I do not mean huge incomes but a clear gap between their income and all their spending.
Typically the value of their own home was not substantially greater than their other properties. So instead of maxing out their borrowing on the one big house they spread it across 2 or more properties meaning they would now have rent to help pay the mortgages.
Their end picture always looks great – multiple freehold properties providing ongoing passive income from the rent. So they have a strong asset base plus good cash flow without needing to work.
So the lessons that can be learned from them are:
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Monetary discipline: if you can consistently live within your means this will enable you to go further and faster financially.
- Always explore your options with your property. So many people’s default option is to sell their current house and purchase a new one. It may be far better to retain both so at the very least you should always look at various scenarios.
- Do you really need the big, expensive house? An $800,000 house may take 15 years to pay off while a $600,000 home and a $400,000 rental may take 10 years to pay off so you are worth more and get passive income via rent as well.
The information contained in this article is of a general nature and should not be taken as advice. It reflects the opinions of the writer only and does not necessarily reflect the opinions of New Zealand Home Loans.
