Why increasing Your debt when you’re 50 could be a great thing

BY CHRIS GRAY, CEO, YOUR EMPIRE

Our parents have always suggested that if you want to retire early and be financially free then you need to be debt free.

Society has always said the same: ‘debt is bad and evil’. This might be true and a safe option for the average person, but for those that want to create even more freedom and choice in their retirement, it doesn’t have to be the case.

As you get older there is often a large amount of spare equity in the family home. Having it sit there doesn’t make you any richer, however if you get it working you could have twice as much –if not more – on retirement. Most people spend a lifetime paying off their mortgage and, when they finally do, the banks say ‘why not use that dead equity to invest elsewhere?’ Instead of waiting to pay your first home off, why not invest now? Reducing your personal, non- deductible debt is a good thing -however investing in a second or third property will often make hundreds of thousands of dollars more than the few thousand you’ll save in interest paying off your home.

The main way people lose money in real estate is when they buy something too speculative and volatile, or when they are forced to sell. If you buy median-priced, blue-chip properties in blue-chip locations, and have the cash flow to hold on for the long term, it rarely goes wrong. Create a cash flow buffer from your existing equity to ensure you never have to sell.

Your lifestyle doesn’t have to be sacrificed if you buy more investments – even if they are negative geared. Just as you can use your spare equity as a cash buffer, you could use your equity to help cash flow any difference between the rent and the mortgage. Think of it as working capital in your business. Banks have responsible lending codes to abide by which should ensure that you do have the serviceability to cover any extra borrowings. However not all lenders are the same, so if you want to be more entrepreneurial you need to find an entrepreneurial lender.

If you want to play things safe you should buy a home, pay it off, and invest from there. However, if you want to create an extraordinary retirement, you need to go against the crowd. Investing can be risky if you don’t know what you’re doing. Make sure you hire professionals who are making money through property investment themselves, rather than people who have the qualifications but aren’t practicing what they preach.

About The Contributor

Chris Gray is CEO of Your Empire, a buyers’ agency that buys homes and investments for time-poor professionals – searching, negotiating, renovating and managing property on their behalf. Chris has spent over 10 years as the host of ‘Your Property Empire’ on Sky News Business channel, where he’s interviewed various heads of property research companies and major industry figures. Chris is a qualified accountant, buyers’ agent and mortgage broker. For more information, visit www. yourempire.com.au and follow Chris on Facebook: @ChrisGraySydney