This is a strange concept and one that takes a bit to understand but once you grasp it, it can be life changing.
You see, most families are trying to pay their debts and mortgages from their income earned on an hourly rate after tax. This can be very slow and painful and takes usually up to 30 years or Sixty Thousand work hours to pay a mortgage. OMG, it’s like trying to paint a house with a feather, a long slow and painful process.
Let’s look at how debt can pay debt.
A $500,000 loan over 30 years could be extinguished in 10-12 years with the investment in a second property of a similar amount.
Now a property growth cycle is 10-12 years. This is where property doubles in value from the original purchase price. This occurs mostly in major capital cities and some good regional areas.
Interestingly the second property that you purchase is funded by the Taxman and Tenant, so it’s pretty much self-funding.
Let’s assume the price doubles to $1 million in 10 years and the $500,000 mortgage is now around $350,000, well you could at that point refinance your investment and take out the $350,000 and pay off your mortgage.
That’s a saving of 20 years, or 40,000 hours of having to work to pay off the mortgage. That’s debt paying debt!
We are educated from birth to stay out of debt, this is false information, not all debt is bad. Debt for a credit card is bad but debt for income producing assets is good.
Learn to master debt and you have a key to financial freedom.
Imagine having 5 investment properties and the market over a few years moves up $200,000 (it did this in 3 years in Sydney), well you just created a million dollars.
If you are trying to stay out of property investment debt you may be working the rest of your life.
Use debt to create wealth and funny enough you will get out of debt quicker.