101 Ways to Get Out of Debt and On the Road to Wealth by Ashley Ormond

Author:Ashley Ormond
Language: eng
Format: epub
Publisher: Wiley
Published: 2012-01-05T00:00:00+00:00

Chapter 45

Trade up houses, but trade down debt

The pattern for many homeowners is to start out with a modest house and a modest mortgage. Then, as their careers or businesses grow, their living expenses also rise and they take on bigger and bigger mortgages to buy bigger and more expensive houses. I often meet people in their forties and fifties with massive mortgages that they have no concrete plan to reduce or pay off. Their only real option is to use their superannuation balance to pay out the mortgage, then try to survive on the government pension and government health system for 30 or 40 years of retirement. They can’t downsize to a smaller house to free up cash because the kids are still at home and probably will be for the next 10 or 15 years.

Here’s a way of getting out of debt, building wealth and having fun all at the same time. My wife and I have been doing this for more than 20 years and it has contributed to about half our total wealth. Thousands of others have done it successfully as well.

Instead of taking on bigger mortgages for each house, the trick is add real value to the houses so you can sell them, then buy the next house with less debt, not more. With each house you can free up cash, so you can reduce your mortgage size each time and pay off the mortgage completely after a few houses. Here’s how to do it.

Research your chosen market so you know it inside out. Study the properties and the prices paid. In a few seconds on the internet you can download the address and sale price of every house sold over the past 10 years for just about any suburb across Australia. Walk (don’t drive) around the suburb with the list of past prices and get an understanding of all the various pockets or submarkets in your target area. For example, the pockets might be near the railway, around the school, facing the park, along the main roads and so on. Different pockets might also have different land sizes, different sized houses or different style houses built in different eras. Understand what prices the properties go for and why. Go to hundreds of house inspections and dozens of auctions.

Research also includes understanding the current and potential buyers and sellers in your chosen market. What sort of people are buying? Why? What features are they looking for? Do the same for sellers. Get to know what is driving property values. Study the factors driving demand for properties in the area, such as employment, transport links, shops, restaurants, schools, hospitals, entertainment, sporting and leisure. Also study the factors driving supply, such as planned developments, zoning and likely future planning trends. You can never do too much research.

Specialise, don’t diversify. Only by specialising can you build in-depth knowledge so you understand values, know when you are buying for less than the true value and know what types of improvement your target buyers will pay a premium for.

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