Depending on circumstances, the right property investment strategy and structure can reduce a home loan by years and generate a healthy retirement fund for almost anyone.

In the below example, we show how an average family investor has reduced their home loan from 28.6 years to just 10 years and within 19.3 years, completely paid off an investment property as well.

That’s a huge saving on interest (money given to the banks) and one of the major reasons why we constantly advise people to get proper professional advice and set up the right structure for their property investments.


What Difference Does Owning an Investment Property Make?

The tables below are an example and a simplified version of the analysis we do for clients.

Figure 1.1 – Home without an investment property

4.75% interest rate 2015
Home Value $500,000
Home Loan Balance $300,000
Interest Rate 4.75%
Monthly repayments $1600
Term 28.6 years

 

Figure 1.2 – Home with an new investment property - Paying down the loans and increasing equity

4.75% interest rate 2015 1yr 5yr 10yr 15yr 20yr 
Home Value (based on CPI) $500,000 $530,000 $699,113 $895,424 $1.198m $1.604m
Home Loan Balance $300,000 $275,416 $173,659 $0 – Home loan paid off $0 $0
Investment Property Value (based on CPI) $400,000 $416,000 $486,661 $592,098 $720,377 $876,449
Investment Loan Balance $425,535 $425,535 $425,535 $425,019 $208,978 $0 - Investment property paid off

 

Figure 1.3 – How much it costs

4.75% interest rate 2015 1yr 5yr 10yr 15yr 20yr
(A) Income (rent & tax credit) $360 p/w  $28,484 $25,440 $28,127 $26,681 $23,348
(B) Expenses (interest, rental expenses)   $25,387 $26,036 $27,479 $65,295 $21,439
(A-B) Investment Property Surplus   $3,097 -$596 $648 -$38,614 $1,909
Net Cost (Home + investment)   $35,206 $37,622 $39,164 $38,614 -$1,909

 

Our assumptions and generalisations take into account the effects of all the tax advantages, costs and deductions involved in purchasing and servicing an investment property loan. The example is based on buying a new investment property.


How it Works

The tables may look a bit daunting, so here’s a simple explanation.

figure 1.1 - In this example, it would take 28.6 years to pay off a $300k home loan making the standard monthly repayments or $1,600.

figure 1.2 - Adding investment property income and accessing some of the $43k income tax that is paid on a $150k income (accessible through investment property tax deductions) this family is able to reduce the term of their home loan to just 10 years plus by the 19th year, both the investment and home loan would be completely paid off.

figure 1.3 - The net cost of both properties over the 20 year period.


Pay Off Two Properties in Less than 20 Years

The actual calculations are a little bit complex, which is why you should come and see us or go to a competent property investment advisor. But our model takes into account assumptions ranging from property expenses, interest payments, rental income, depreciation and tax credits.

Everyone’s situation will be different, but the key point is that you can greatly reduce your borrowing time and expenses with the right structure.


Pay Less Tax 

Click here for a more in-depth explanation on how you can utilise your income tax when investing in property


If you're ready to find out more, give us a call to arrange a free financial check on your situation at your home or at our office in Mount Lawley

Contact Us


*This article is for general information purposes only. It is not intended as financial or investment advice and should not be construed or relied on as such. Before making any commitment of a financial nature you should seek advice from a qualified and registered financial or investment adviser.

PEB Group is a complete property advisory service for Perth families. Offices are located in Inglewood and Willetton, Perth, Western Australia and offer service in - Financial Planning · Finance Broking · Property Management · Property Sales · Property Investment · Development

PEB Real Estate - Licensee PEB Real Estate Pty Ltd. Trading as PEB Real Estate ABN 33 604 199 617. Triennial Number RA70508

PEB Financial Planning - Howarth (WA) Pty Ltd ARN 433328 trading as PEB Financial Planning is a Corporate Authorised Representative of NEO Financial Solutions Pty Ltd. AFSL 385845 | ABN 64 141 607 098

Fungroup Enterprise Pty Ltd | ABN 50 104 943 412 | Australian Credit Licence 389510 | trading as PEB Finance | ABN 50 104 943 142 | Australian Credit Licence 389510