PROPERTY INVESTING FOR BEGINNERS

Another interesting weekend chat with a blog reader and Facebook follower, Ms B about property investing for beginners. This reader has an impressive kind of discipline. I like having chats with young investors.

Hi Mbini,
I have been following your blog and Facebook posts about real estate on your timeline and on Facebook groups. I was hoping you could advise. I just sold one of my properties expecting a return of R80,000. The property was financed by the bank.
I do have another property, which I bought for cash for R650,000. I also have some cash loan and credit card debt which amounts to R90,000.
I drive an old small car with 260,000 km mileage. The car needs to be replaced but I'm not sure of the route I should take when buying a car. I know I will have to settle my debt first.
Is there a way that my paid up property can assist in acquiring more real estate investments?
Thank you.
Ms B

property investing for beginners

I get a lot of questions related to property investing for beginners. I hope that unpacking the reader's situation will empower more readers. I posed a few questions to Ms B to get more clarity on her current financial situation.

Mbini: Do you plan to acquire more investment property or different kinds of investments?
Ms B: Yes, I want to invest in more property. I will be settling R60,000 of the debt by the end of next month. You may also advise otherwise.

I'm very worried about Ms B's R90,000 personal loan and credit card debt. This is very expensive debt. I would prefer the property debt to credit card debt. The interest rate one is charged by banks on the credit card debt and personal loan is quite high. It is advisable to pay up the debt as Ms B already plans to.

Coming to the paid up property. If this paid up property worth R650,000 is a rental unit, I would have preferred to owe on it instead. Property debt is a much cheaper debt. Interest rates on property are much more competitive than on the credit card. 

The other important factor to consider is the debt's tax efficiency. Interest on the homeloan attracts the tax deduction. This is one of the biggest benefits of investment property. The main aim is to minimize tax liability. To keep the overall taxation low, an investment property with some debt on it is more desirable.

Finally, if I were in Ms B's shoes, I would work on accessing money from my existing property and settle my personal loan and credit card debt, if at all possible. Accessing cash from a property can be done by refinancing the paid up property. The cash would then be used settle the debt and towards investing in the second investment property. It is very important to make sure that the interest rate one is charged  on the new homeloan is competitive. Even better, one must make sure that the new mortgage is an access bond facility, to ensure that cash is easily accessible in future. 

Ms B: Let me think about it, do more research and get back to you with more questions. I like your thinking, thank you. My challenge is always trying to play it safe.
Mbini: I can see that. Playing safe in investing does not always work. All the best.

We will be posting more on property investing for beginners in future, especially given the current poor economic climate. 

Feel free to email your questions through our contact page. I trust that you have started with the savings challenge. We have four steps and groups. 1. Debt pay-up, 2. Emergency Fund, 3. Other Savings Accounts, and 4. Investments. Please do keep moving. Start slow but do not stop. For daily motivation like us on Facebook, Twitter and/ or Instagram.

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THREE MORTGAGES IN ONE YEAR

When I was quiet, its been crazy in this household. We actually applied and got three mortgages in one year after paying off all our homeloans. This scares many people but I guess its just our life. We go through some sort of preparation before we apply for a loan because we just can't stomach rejection. We are cowards like that! We also use our rental income in a spreadsheet with bank statements as proof of extra income. Now on to the story of us accessing three big mortgages in one year. A truck below being testament to our latest move from house to house.

Three Mortgages in One Year - Moving House

Every once in a while I itch to go through a renovation project. It seems to be a very strange feeling to many, but I on the other hand have accepted the fact that I am not normal. I definitely don't want to be normal, thank you very much. As this "renovation itch" time approaches, I started searching for a good fixer upper in the area of my dreams. I saw a gorgeous traditional style 1960s Victorian property listed online, with all 5 bedrooms, 3.5 bathrooms, a study, 2 kitchens and outside rooms. It was everything I ever wanted to work on beautifying. The only problem was that we were away as a family and would go back home in a week's time. I lost the listing and never bumped into it ever again in that week. 

The Viewing
Back home we started calling real estate agents to show us the properties in that same area. We love gated communities for obvious reasons. One agent took us out to a 3 bedroom house with a lot of ground to extend the house. As we were driving to the show house right behind our agent's car, we drove past the Victorian property I saw online. I froze inside the car but I didn't want to disrespect the agent by asking her to stop. This was such a painful discovery. I knew that I want that old house but without an idea how I will make that happen.

We viewed the 3 bedroom property and asked the agent to email us an "offer to purchase" form as we take the decision. We were too excited by the possibility of extending the current structure or rezoning the place into a two duet property. We could sell or rent out the one house and live in the new house. The house wa nicely placed in the front portion of the stand with massive land behind it. The stand measured about 1300+ square metres (14,000+ square feet). The agent lead us the other direction, to get out through the other gate of the estate. Meaning that, I couldn't see the Victorian house as we drive out.

The Search Re-Launched
We waved goodbye to the agent as we were trying to get back into the estate to see the house we wanted one more time. The Mr had not seen it as we drove fast past it the first time. Unfortunately, going back in there was impossible. Back home in my laptop, the search began. The house reappeared on my screen. I wanted to jump up and down. It was listed by only two agents (dual mandate). We called the first one but she seemed not interested to take us to see the place. We called the agent in the second advert. She was available immediately. The house was absolutely crazy dim and ugly inside. Just think OUTDATED everything.

We made our mind there and then. We'll sign in the dotted line. Almost 1600 square metres (17,000 square feet) of land and a lot of space to play around with remodel ideas. Solid structure without a single crack in sight. I looked at it and thought to myself, "I am absolutely home". Finally, a house with a veranda (porch) as large as a playground. We were pleased and arranged to go view it in a few days just to be sure. The house was on the market for only a week plus at the time.

After the second viewing we went to sign the offer to purchase. One couple had beaten us to it. We signed the offer anyway and offered the lowest we think the sellers would accept. A saving of more than R200,000. We were convinced that the place was listed below the market rate to start with. In just a few hours our agent called and told us that our offer was accepted. We were beyond thrilled. We were told that the lady from the other bidding couple cried. I understood her as I probably would have cried in her position too.

Mortgage 1 and 2
We financed this property with two mortgages. I will never have enough space to unpack that process in this article. But to cut the long story short, the interest rates we were charged were too high on a new mortgage. We decided to get a re-advance on two of our fully paid mortgages. Those were two super cheap homeloans.

We moved into the new home. It has been a hectic year trying to clean the place up. Removing carpets, splashing paint, etc. Our home was now light and getting there quick when we spotted another house for sale within the walking distance of our new home. We called our agent to investigate the owner and negotiate an offer. The price was non negotiable.

Mortgage 3
We were back at the bank door asking for a homeloan with our 20 percent deposit (down payment) in hand. This one house was in an office street. We wanted to rezone it into a commercial property. We go crazy when we see an opportunity to try something we have never done before. We immediately searched for town planners, architects and quantity surveyors. Finally, we have a commercial property. The process has been a money drain but we are still happy we dived right into the deep end. Our residential rental properties are hard at work financing this project. This is a life changer.

That my friend, is how we moved from having no homeloan to having three mortgages in one year. We are still working on this commercial project. Our calculation shows a return on investment of 17%. That is more than we can ask for.

Our Plan
Renovations on our current home are very slow. This is an asset that is underutilised. We are planning to complete the renovations on it and the commercial project and rent both out. Meaning that in a few years we will definitely be homeless again. We live in a construction site all the time. Super crazy, I know. We have a few ideas to try with existing investment properties, in order to raise their productivity and rental rates.

We had a hectic year. What a ride! Building wealth has never been this exciting. Its tough at times but overall exciting. Just remember this: It is POSSIBLE to do this for anyone. I may come back on the process of applying for a re-advance and a reasoning behind taking that path to finance our property.

To ask any questions from me click here...

Many blessings,
SISA

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PAYING THE HOMELOAN FASTER

Latest reader's comment is on paying the homeloan faster.

I am so inspired by your blog. I have just bought a small house and from
reading your blog I now see that me and the bank can bond for a lot less
years if I take control of my finances. I need advice though, but I will save
that for another day. Thank you for putting all this out there."
Ncumisa, South Africa.

 Thank you and pleasure Ncumisa. I share this because I love it. I love it when people get out of debt and start building wealth.

And yes, you may pay up your bond faster. I received a call yesterday from someone who wants to pay up her home in just 5 years. From the calculation we realised that it can take her just below R17,000 to pay up her R800,000 home in 5 years. Well that depends on the interest rates that an individual is charged by their bank.

What people fail to realise is that, even R500 extra on their homeloan payments eats on the capital amount and makes a huge difference.

My advise to you would be

• Start small with what you have;
• Start now not next year;
• Stay consistent... every month, every year, every quarter... just keep moving;
• Plan an escalation. It may be 10% increase on your extra payments.

You may also do a lump sum payment from your annual bonus if you are lucky enough to have one of those. Every little bit helps in paying the homeloan faster.

Thanks again for your comment.
All the best in your financial freedom path.

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HOW TO PAY A HOMELOAN QUICKER

I promised to write on how to pay a homeloan quicker in the post on how to consolidate debt using a mortgage yesterday. This is part of our Dealing with Debt series. This is kind of how we paid our last bond and the previous six quick. I know, I know, I am contradicting myself here, but if you are not in the business of property, you are better off in a paid up house. Debt is draining.

HOW TO PAY A HOMELOAN QUICKER

We are now searching for a house AGAIN. Our previous home is now a rental property. The challenge that I have is that, I have quite a bit of stuff that needs space. I have exercise equipment that are now too much for the place. Don't ask if I use them regularly or not please. But in my case, I feel having them stops me from signing another gym contract. I used to have a gym contract all the time, until I decided to buy my own equipment. Anyway, back to our topic on "how to pay a homeloan quicker".

Most of our homeloans in South Africa are a standard 20 years. Mine was 30 years, other people choose a 15 year term. Those terms mean nothing but the maximum term because we are lucky to never be restricted to that term. We sign those terms and decide if we really want to stick to the term or shorten it. I will make an example using a R500,000 house like our yesterday example. It's much easier to follow the logic of figures when you have calculations in front of you.

Make Monthly Extra Payments
Even a R100 extra in your homeloan makes a huge difference. I will use R500 and R1000 in my examples.
R500,000 homeloan; at current 8.5% prime rate; 20 year term
You pay R500 extra every month and pay your bond up in 15.5 years. You see how R500 sheds 5 years off your repayments. If you pay R1000 extra you'll pay your bond in just below 13 years. Remember yesterday we worked on R2000, which results in paying up your loan in less than 10 years. If your bond is R1Million, you may just double the figures. Extra payments are worth that sacrifice.

Pay your Bonus to Homeloan
Those who have a 13th cheque in their jobs can put most or all of it into the homeloan. Lets say instead of the R1000 per month, you put the R12,000 once every year into the bond. You will end up paying your bond in 13 years or so. This is what I did, on top of monthly extra payments. I paid my first property in 4 years. It was very tough to do that, but the income from renting it out later was SWEET.

Refinance and Negotiate Interest Rates
Most people never negotiate anything with their banks. Its time you start. If you have a clean credit record you may go see them and ask that they lower your interest rate after a few years. The worst case scenario is them refusing. If they do refuse, you can always switch to a bank that is interested to your business at a lower rate. Lets say you get 1% rate cut. This lowers your payments by more than R300. If you pay that R300 back to the bond, you shave 3 years off your bond. Can you see how even that little helps?

There is more tricks and tips on how to pay a homeloan quicker. These are the simpler methods.

Other articles on Dealing with Debt series:
Paying up your Debt
Paying your Debt using your Homeloan

image credit

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PAYING DEBT USING A HOMELOAN

Try paying debt using a homeloan if you are disciplined enough. This is the second installment on my series on Dealing with Debt which I started yesterday. I have used an existing homeloan to pay up debt. We paid Mr's car using our mortgage once. It was a great move and saved us a lot of money in interest. The best part of this move was that, we paid the original car installment into the bond and ended up paying the loan in a fraction of the time.

PAYING DEBT USING A HOMELOAN

 One amazing tool that people neglect is their homeloan. Your mortgage is likely charged at a prime lending interest rate and most likely below prime rate. Whilst other debts are above prime rate. Credit card and store cards can be above 20%, a car and personal loans closer to 20%. Remember that prime interest rate is 8.5% currently.

This is all a figures game which your bank plays too well. If you can pay below prime for your debts, why not. If you have a homeloan that you've had for a while and the value of your home has gone up, you can have the bank give you an access bond. You can even ask for a lower interest rate whilst at it. Or even change banks to get a lower rate, but that's the story for tomorrow. The bank may increase your homeloan to the current value of the house so you can access the extra cash in it. Like I said yesterday THIS IS FOR VERY DISCIPLINED PEOPLE because you are now starting another 20 years of loan.

Lets use a "paying debt using a homeloan" example:
Lets assume you owe R50000 in the combination of your debts (consumer debt, credit cards, personal loans, etc). The average rate for all of them is 20%. You pay about R2000 per month to service this debt. R500 here, R300 there, etc. At that 20% interest rate you will take about 33 months to pay all that debt (hope my spreadsheet is accurate). That's almost 3 years of parting with R2000.

An alternative is getting the access bond on your house and pay all your debt. And then, pay the R2000 extra into the homeloan. Remember that your bond payment may increase, though unlikely if you had it for a while. But you will pay the R2000 extra into the homeloan, because that's the R2000 that you would be throwing in the water anyway.

Assuming that the house is worth R500,000 at 8.5%, then your monthly installment is R4,339.12. You'll pay your mortgage in 20 years and part with a total of R1,041,388 in that period. At least your income will be increasing over time hopefully.

Now add the R2000 to the equation. Paying R2000 to your homeloan can save you more than half the interest you will pay over the term of your loan. You end up paying your homeloan in 9.5 years instead of 20. And then part with R 734,675 instead of R 1,041,388. Paying a homeloan quicker can be so sweet and effortless.

See how you can use the R2000 that you throw into the bin all these years. Debt will ALWAYS be an enemy, unless you use it to get income. What do you think of this concept of paying debt using a homeloan?

image credit 

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AGAINST PAYING UP A HOMELOAN

For someone who has done some post graduate qualification in real estate investing, I kind of suck at applying some basic principles in property investing. Here's the thing: the Mr and I are not fond of owing anyone including the bank. So naturally we have always put the majority of our income into paying up some property. It sounds amazing but at some common sense level it is stupid. Why on earth do we throw money in the "air" sort of, over and over again. This is my take on and against paying up a homeloan:

against paying up a homeloan

Seriously, the only advantage of property investing is LEVERAGE. I don't know any financially sound reason why someone with "cash in hand" would choose to buy and fully own a property right away. Forget that I wrote about paying up my own homeloan here, here, and here. And contradicted my original and sober position against paying up a homeloan. We did end up paying up our last homeloan in June 2013 which is exciting. But this is not really a great/ advisable move, but a "PEACE OF MIND" kind of a move. We do hate debt and are happier without.

NB: If you are not particularly good with your finances, paying up your homeloan is probably your best option. The paragraphs below are for people who would invest the money that would have been extra payments on their mortgage.

A homeloan is sort of risk diversification. Think about it, you own only part of your home and the bank owns the rest. Recently a SISA reader was scared of the state of affairs in the country and its impact on investing in property. Leverage is a great solution to that fear in my opinion. For 20 to 30 years, you are a co-owner of your property.  Should something go bad in the sector, you have only part of the investment to worry about. What bothers me with the property ownership is its lack of liquidity. You will always have a lag in your actions. But I am grateful for investing in property at the time that we did. Its the best place to start investing... at least for us it was.

In our last case for instance, we paid up our 30 year homeloan in 6 years. We saved hundreds of thousands of rands in interest. That is great right! The interest rates we last paid were 6.9% per year. That's how much we are now saving by being mortgage free. Think of what the same amount (extra payments to bond) would have achieved in our retirement accounts. Our mortgage was from January 2007. We established that we saved between 8 and 10%, because our interest rates are not fixed. I wont invest anytime in calculating the actual amount, so lets say we saved 9% in interest.

Now lets look at a completely passive return on investment we forfeited. If we went the SATRIX route (because we were clueless on individual stocks at the time, and had two satrix accounts). It seems I can only get up to 5 years charts in their website.

SATRIX vs PAYING UP A HOMELOAN

Oh well Satrix FINI managed to get a whooping 17.7% per year in the 5 years whilst INDI got 30.8% per year. This is what we would have achieved by skipping the mortgage payment and focusing on investing in one of the two satrix investment accounts.

Well since we didn't go with the profitable plan, we are still appreciating the fact that we won't pay any mortgage this month. I think we will go on a mini holiday using that money. Something a bit out of character and extravagant. And then go get a much cheaper access bond on that account and withdraw it to try and invest it wisely. And maybe this family will let me use some of it to buy me a nicer car seeing that my car fund is not ready yet and our other car is in a "please replace me" state.

Whats your take on and against paying up a homeloan?
image credit

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PAYING THE HOMELOAN QUICKER

Paying the homeloan quicker is not necessary, not even economically sound but satisfying. 6 short years ago we were knee deep between two bonds. Oh well, it was not that bad. The second property was a rental one and our investment property was working together to kill the principal amount. But those were not easy times.

Paying the homeloan quicker

Fast forward to today, my bank statement reads, R2678. Meaning that, for the very first time in 12 years I have no bond, almost. I've been referring to my mortgage as my ONLY debt and from month end I will be debt free. Before throwing a congratulations my way, be rest assured, this will definitely not be for very long. I will definitely be creating some profitable debt in a few months. I just want to savour the moment and enjoy the feeling just a bit.

What this means is that I will have just a bit more disposable income because there will be no money taken by the bank from my account. I feel extremely blessed. We will also be able to pay more attention to other investments.

Remember I am one of those people who are against paying the homeloan quicker than required. I got over that and when the Mr was on my case about killing this debt I was game. Its not very easy taking savings to put into a bond. I don't know if I will do it ever again, or even if I would advise someone to it. But the feeling of being debt free is priceless. Even if its for 6 months or less. I may even take my family on a holiday, get some proper "debt free" closet boost and go earlier for my spa treatment.

Our Journey to Paying the Homeloan Quicker
If you are interested to know how we did it, here's how. We took our savings and dropped a huge percentage into the bond. We then added extra payments towards the mortgage every month. Extra payments were probably the hardest because it was quite a large amount. We also got extra strict on expenditure. I keep telling people that I can do with a bit of frugality. I really am not frugal. My main thing is creating extra income. It doesn't even have to be passive income. I am happier when I am a bit more productive than an average Joe...err Jane.

What Next
High on the agenda is getting a bigger investment. It could be a commercial property or something more passive. The Mr thinks I can maybe have a store or something. I think waking up to go to the shop every morning is not something I would enjoy. A few days a week maybe but not daily. Some things are just not for everyone. I would much rather have an online business. But being in SA, online businesses are not as big as in the western economies. Whenever I make some move, you'll be the first to know.

What have you been up to? Are you winning your own financial battles? What is your take on paying the homeloan quicker than your mortgage term?

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MORTGAGE PAY UP - NOVEMBER 2012

Things are slowly happening and I hope to be sharing on my experience with the dividend growth investing I am experimenting with soon. As for today, I am looking at my mortgage pay up and how I went from being against paying up my mortgage to being excited about paying it up in 2 years a year ago. You may see the figures here. Lets see what a year of good focus can do.

mortgage pay up update - November 2012

As you may see, the debt graph is heading south. Its almost a year since the first pay up drive. It looks like we may just win this battle in less than 2 years. Something tells me we will be 100% debt free in 18 months. It will be exciting to drop the line "we are debt free except for our home loan". Or the one that goes, "we only owe a little on the house". Next year this time, I might be saying, "we owe no one, no one at all". We already own far more equity than we owe at 66% equity. And it feels great.

I know there is someone who wants to know how we are doing this:

1. Our home is modest. Every room is used optimally. We even switch main bedroom with the guest bedroom every few months, depending on the season and our mood. 
2. We are driving old cars. Mine is 5 years old and will probably push for another few years. This means that we have no car payments. That should be some R10,000 to R15,000 savings which would probably be installment for two cars. That's judging by the installments for the middle class kind of lower cost cars.
3. This is our only debt. Almost all our excess funds are paid into this bond account, including the R15,000 I mentioned in the previous point.
4. We took part of our savings/ investments to pay into the home loan. It was so painful doing so but I can now see that sacrifice paying off. The home loan costs us 6.9% per annum whilst the savings earned us a mere 4.65%. We should have done this way earlier.
5. We pushed our rental property mortgages and managed to pay them up, freeing more cash to pay to the house. 
6. We dont allow ourselves to create any kind of debt. It doesnt matter how much bonus points we are promised. Debt is just that...DEBT.
7. We are not frugal, but we don't overspend on unnecessary stuff either.
8. One most important point is that...we are way too excited. This whole adrenaline drive keeps us way too excited. The thought of not having a bond account as a monthly expense keeps us stuck on the goal.

 We are already planning on what we will do after the last payment. I can recommend this to anyone, really. Try paying up debt to feel how I'm feeling right now. Its an amazing feeling. I think we will have to go on a week long Africa Safari holiday or by the beach after killing this debt. 
I would love to hear from you. What financial goal have you set for yourself lately?

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MORTGAGE PAY UP UPDATE

This just cant wait. I decided to have a monthly mortgage pay up update. Yeah, its the most exciting issue here at SafeInvestSA at the moment. Remember how I was against paying up my mortgage only a few months ago? Things change hey. And now I am fast tracking my home loan payment like its getting out of fashion. Not to mention how excited I am whilst doing that and about the prospects of being debt free for real.

mortgage pay up update - Sept'12

See the graph with my portfolio targets to your right. My home-loan has 56% equity in it. Only this morning it was at 52% before we decided to go ahead and sacrifice a small lump sum to help us get where we want to be. Its all worth it. This one is for my peace of mind. Its not about what makes financial sense. I know I did real estate investment education, I know all about the power of leverage, but I am going against the grain with eyes wide open. I decided to be debt free, and that's mostly a psychological decision.

What this means is that my stocks, bonds or whatever else will be stuck at 20% goal achievement for a little while. It also means that hubby is off my case about this one debt. He is a happy man.

I even wanted to throw most of my emergency fund into the mortgage to take our home equity to 75% (how sweet that sounds). However, not having an emergency fund is not an option for us at this point or at any other point for that matter. Having said that, I don't see the need for the extra 31% in our emergency fund. I am only comforted by the fact that it earns a little interest there.

Moving forward, I will post a mortgage pay up update every month. I will commit to my crazy target date of July 2014. Every extra cent that comes our way is going to the home-loan. When I pay myself every month, I will be transferring that to the mortgage directly. I feel very much at peace with that decision. See you in the October mortgage pay up update. I will hopefully be entering the 60s in the home equity by then. It feels good to be doing this. If you like reading about personal finance, go ahead and like our facebook page or follow us on twitter.

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Pay yourself First

Pay yourself First

Yes, we've heard the phrase over and over again, "pay yourself first". I have lived by this phrase, then I detoured from it and got back to it several times. For me at least, this is the only way. To make me feel better about "sacrificing" that first sum of my cash, I try to get the relatively safe investing tools like my Nedbank JustInvest account. In my previous post I compared this account with the Money Market accounts in South Africa, if you are interested. This serves as my emergency fund (EF). When you are a small property investor like me, you need an emergency fund account. Actually, when you are a home owner, you need that more than you probably think.

In the past, when I was new in the job market and even newer in property investing, buying every book I can get my hands on with some kind of education in real estate investing, my saving strategy was very simple. All I wanted was to pay off my apartment. I sacrificed more than half of my salary for that and it helped. The way I did this was to get my salary, transfer part of the salary that I wanted to save into my home loan account on the very payday. Off course it has to be on the same day because the interest is charged daily. I just had to save that R50. And then I waited a few days and called my my bank to get a statement because I couldn't link this home loan account to my internet banking. I was almost obsessed with the statement and it helped. I saw how quick the debt was dying and that gave me some sort of adrenaline drive. Even though I've always loved a nice pair of shoes and a handbag, they just had to be on sale to deserve my money. I would see that R500 reducing my debt further. I paid myself first and then whatever that was left, paid me some more. Unfortunately, there was rarely cash left.

Fast forward, I paid up my flat in just less than 4 years. Yipeeeee!!! I remember the last few months seeing a balance below R20,000 and being overjoyed. The feeling of victory that I am soon an owner of a paid up property kept me wanting to pay more and more. Fast forwarding to a few years ago, a few properties paid up, more shoes, more bags, a better car, a bigger house, a family, woolies food, health shops, spa treatments, need I say more. Living a little is an understatement. I lived a lot. I stopped living by the very principle that took me where I was....pay yourself first. I paid me last or almost never. What helped was that I always had multiple homeloan accounts to pay, which served as my  only way of paying myself. I even think thats the reason I always had a homeloan that I resisted to pay up. This is until the hubby convinced me to pay up our second homeloan last year. What a sigh of relief I had after that. I then went back to my old ways of staying with my debt until last month. I decided to pay off my only homeloan, which will take some doing. Its a sizeable amount and needs hard work in the savings front.I feel I am back in the adrenaline drive days and its exciting.

I am now back to paying myself first through my EF and paying off my homeloan. I consider paying off my homeloan some sort of a safe investing tool. I know it is not fool proof but it could be safer than investing in index funds and even safer than buying individual shares. Don't get me wrong, I buy shares knowing that its a higher risk form of investment, I try to read and listen to any sound stock investing advice. But I am a typical beginner, still harnessing books, blogs and online resources on basics of stock market investing. I have a feeling that I'm done with property investing though. I am looking at investing in REITs (Real Estate Investment Trust) and retail bonds. All I can  say is, don't take my word for it. I may be buying a townhouse soon. I am so unreliable.

Off course, if you have debt, paying it will be a form of you paying yourself first. Keep at it and celebrate with every R1000 that goes down. Its very rewarding being debt free.

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Paying off Mortgage

Yes I know what I said in the past about not paying off mortgage and leverage and gearing and returns and alternative investments. Shoot a girl for trying to please a man in her life!
Before getting to this financial decision, let me disappoint you further with my holiday season spending news. The past few weeks of my less than perfect health lead me to "not so cool places" like gynecologists and even heavier names like endocrinologists. These overwhelming few weeks left me yearning for a holiday. I took a short trip with my son and I did spend quite a bit of my hard earned cash. My son scored new games and I even got me a nail grooming kit. Its promising to save me on salon manicure costs.  I guess after the illness you can get yourself into a state of "money disrespect". But at least I am now back only to plan another holiday to Swaziland for next week.

I vow to not overspend on this trip. It will be a lovely holiday for my family. I don't promise not to behave like a tourist though. I may get a few memento items.
On the mortgage news, we decided to just work on paying up our one mortgage. That's the only mortgage standing. After the hubby has begged and begged, and against my better judgement we are paying the darn mortgage up. Debt no more! This whole mortgage pay-up process is made exciting by the tier kind of interest we are charged. We are in the last and lowest interest rate tier. Our minimum mortgage installment has dropped remarkably and I couldn't be happier. This makes it even easier to kill and bury this debt faster.

The reasons I decided against my "never paying off mortgage" position are:

1. I am never going back to work. That means we will be having one salary and other income sources we created over the years. Paying up the mortgage will mean cutting down on our monthly expenses. That should be great news right? It also mean that the hubby can be able to decide to also have his job being optional. He doesn't hate having to have a job as much as I do though.
2. My hubby was nagging me all the time about paying off this debt. He hates it and I think its only fair to make him happy this once. Its not everyday that a girl gets married to a guy who is happy driving an old car and paying up all his debt. I love him again for that.
3. The most important reason is that we CAN. So why not?

I have a suspicion that I will keep thinking about what this extra mortgage payment would have translated to in alternative investment returns. I don't think I should worry about it though as the funeral of this debt will be as rewarding as having a winning lottery ticket. We will try to to have a "paying off mortgage" trip to the Mediterranean parts of Europe next year (2012). That will coincide with our 10 year marriage anniversary. Time flies dear friends. Its amazing how our marriage survived the worst of conditions including tons of relocations even across countries, renovations and more of those, two pregnancies and strong cravings and debates on whether to pay or not to pay debt off. What kept us so happy is having a common goal and values.

If you are a parent, remember that, investing in your health and spirituality is even more important than ensuring a better financial future for your kids. Our children don't need money but us alive for long.

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Why I Dont Pay off my Mortgage

I am a PF blog hopper and I read blogs of people who are fighting student loans, trying to pay off mortgage, conquered debt, investing, living in financial freedom, etc. I am right in the middle, working my way towards financial freedom. The only debt I have is mortgage on two properties. I have no credit card, or any other debt.


This is why I don't pay off my mortgage:
When I started investing in property back in 2001, everyone was preaching the "pay your mortgage early" sermon. It was at a point where I was a sponge, absorbing any personal finance information available. I was buying books and books on investing and finances in general. I am very glad I did. However, not everything written is right for everyone. The heck, not everything is correct period.

I remember Suze Orman and her passion on this subject. It made perfect sense. It still does for one's primary home in my opinion. So why  am I not paying off my one errrrrr two mortgage debts quick? There are several reasons why its not always advisable to pay off the mortgage instead of saving or investing elsewhere. Before  get to the small list of my reasons, know this....I paid my first apartment off in just under four years. I was over the moon. Now back to the reasons I wouldn't dare:

• Leverage

I wouldn't even be investing in property if it were not for leverage. Why use my money when I can use someone else's (the bank's)? My sort of twisted thinking just doesn't allow me to prioritize paying off mortgage when I could be building my savings, strong emergency fund and investing elsewhere. There is a higher risk to me not having enough savings than paying more to my mortgage.

• Illiquidity

Think about what would happen in the unlikely event that all five of my properties become vacant? My cash flow would be hammered, I would not have money to pay for the two mortgages, and eventually, I would probably lose them all. The money paid into the property is gone. Cash is really king. One needs cash reserves for whenever there is a need and an emergency.

• Cost

It makes no sense paying the cheap debt when you have an expensive one. People who owe on high interest credit cards would be a bit foolish to pay on the mortgage with today's low interest rates. 

• Tax

There are tax benefits that come with a mortgage. Think about how those will put more in your pocket at the end of the year.

• Other Investment Options

With interest rates being this low, one can get a better rate by investing elsewhere. Shouldn't I be putting more money into my retirement plans instead of paying it into the property? Which is bringing in more interest. How about other investment options like stocks, bonds, etc?

I am not about to pay off my mortgages at the expense of my emergency fund. If anything, I will just invest elsewhere, or even get another unit. I do have cash flow to service property debt. This is also not a one size fits all. It depends on whether your property is your primary residence or an investment property, how much other debt you have and whether your portfolio is balanced or not. Think about your priorities. Should you lose your job/ main source of income, will you have enough insurance cover? How are you going to live, until you get your next job?

The bullet points above are reasons why I don't pay off my mortgage. I know most people, including my wonderful hubby, don't quite get it. He is uncomfortable with the debt. I say its a good debt.

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Buy or Rent a Home

I still have to think hard before I respond to the question of whether one should buy or rent a home. There is definitely no “one size fits all”. Even with countless debates around the value of home ownership in economic forums, we still have no one answer for all.

In the 19^th and early 20^th century home was seen as a shelter and provision for comfort. In a way, home buying was never a debated issue. Today, we see our homes mainly as an investment, ironically. We live in money in other words. The decision on where to stay is based on the growth in the value of the home, rather than the homeliness of the suburb/ or area. It sounds so awkward but that’s just what it is. 

For now, I will live in a mortgaged home. And I say this not because I have anything against anyone who rents by choice, but because I see my home as an investment. The thought of owning and renting it out some day gives me unbelievable satisfaction. It’s more a psychological satisfaction. Most of my rental units were once my homes at some point. I really belong in the “own your home” era. I am not that liberal like the current generation, which believes in renting by choice. I feel totally in control when I pay mortgage rather than rent. 

I have to admit though; the financial objectivity of the current young professionals and families is quite impressive. The analysis of the pros and cons makes one think and re-think their decision. Renting can make so much sense when one is a stock investor. Renters seem to be non-traditional, liberal and happy care-free people. This is the time I just want to be conservative and hold on to the past beliefs. I choose to buy and not rent my home. That’s the only way I built my portfolio. For me, it’s not really just a home, but a business.

Have you been in a “Buy or Rent a Home” debate in your circles too?

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