90% of the skill in managing mortgage finance is knowing how to effectively set up and manage a single mortgage, to grow 5,10,50, 100, 1000 properties.
There are two elements you need to have get you started in building a property empire.
1) You own a property with a mortgage. Either you live in it or if you rent it. Its positively or nearly positively geared.
2) You have a surplus left over every month after you have paid off your commitments and living expenses.
There are two parts to a mortgage that are critical for you to understand before you get started.
There are two equities in a property.
A word of advice. Don't just jump past this and say that you know it. Very few people I have met can actually describe accurately the two equity concepts. You will need a mortgage broker to assist you as they have the software and the calculators for you to obtain the numbers to set the mortgage up correctly.
1) Property equity
2) mortgage equity.
Property Equity is the difference between your mortgage value on the 30 year minimum payment curve and your value of the house.
mortgage equity is the value of the redraw. This is the value in your mortgage that you can take out due to increased repayments, over and above your minimum payment. You finance your purchases from your mortgage equity alone.
Does your current mortgage qualify as being useful to build an empire? Does it have?
1) Principal and interest payment?
2) Can you automatically switch it to fixed or variable rate?
3) Can you split up the mortgage into a number of accounts?
4) No fees for extra deposits and unlimited transactions?
5) No restrictions and no fee re-draw facility?
6) Can you choose principal and interest to interest only repayments in each split?
7) Can you have 100% offset account in the future?
No monthly, annual or ongoing fees?
9) Is the loan portable?
Here are the steps. Concentrate on understanding the process loops. You can create your own set of numbers for modelling purposes. This is why you must obtain them form a mortgage Broker.
Process loop 1
1) Start by paying your surplus extra payments into your mortgage
2) You establish that you need $35,000 as a deposit for your first investment
3) it will take you 2yrs 6 months to reduce your mortgage by $35,000.
4) In 2yrs 6 mths, redraw the $35,000 of mortgage equity from the mortgage and use this money as a deposit on a property
5) Buy your first property. mortgage to 75% to 80% of value and the rent covers your payment and expenses AND this allows you to put 20% of the rent into your mortgage as an extra payment. Very achievable but you need to research and probably buy outside the main metropolitan areas. (Tip: follow the commuter rail lines.)
6) Buy your second property. mortgage to 75% to 80% of value and the rent covers your payment and expenses AND gives you 20% of the rent to put into your mortgage as another extra surplus payment. Very achievable but you need to research and probably buy outside of the main metropolitan areas. (Tip: follow the commuter rail lines.)
7) Your third property should take about two to three months less to acquire. Same with the fourth etc. Once it gets moving, there's no stopping!
Three very important questions here.
1) After taking the $35,000 redraw mortgage equity out of your mortgage,
2) did the monthly payment go up on that mortgage?
3) After taking the $35,000 redraw mortgage equity did you increase to original mortgage value?
This gets everyone in a spin when I say this. Is the $35,000 free money?
Do Process Loop 1 over and over and over. Make sure you pay the rental surplus into the mortgage. This is absolutely vital and the key to the whole program. If you want 3 houses great, if you want 300 great, if you want 3000 houses great.
But the process won't change.Its simple and its contained and its very dynamic once it takesoff.
If you don't have a stepped out circular process of property acquisition you will end up with a very loose structure and gaining finance will become progressively difficult.
1) Allow the principle of compound interest to work for you in your mortgage.
2) Develop a powerful belief and understanding in the power and working of compound interest on your mortgage
3) Take some action and get your mortgage set up so you can start the process of moving forward. Call a mortgage Broker now.
