Should you Ever Pay Off your Property?

By: Brett Wood

This question needs to be broken into two questions. Should I ever pay off my home? Should I ever pay off my investment properties?

Let's deal with the home first. Yes you should pay off your home eventually because it is a non tax deductible expense if it relates to your principle place of residence. OK, so that was the accountant speaking in me and since l am a very poor accountant lets put my investor hat back on.

The extension of this answer is that until you have built up a significant enough portfolio to maintain momentum in your portfolio you will have no choice but to leverage your home. I think it is safe to say that most people have a home with significant equity especially if you have owned it more than 2 years. This equity is the key to build wealth.

By accessing this equity and using the leverage of a mortgage on your buy to let properties you can turn ?100,000 equity into a million pound portfolio. The sole purpose you do this is to gain the advantage of capital growth. Until such a time as your portfolio self sustains its growth you cannot afford to pay off your mortgage. Once you have developed your portfolio then and only then can you take your principle place of residence out of the investment portfolio.

OK, now the investment properties. You should never pay your mortgage down on these, always opt for interest only because your mortgage balance will stay the same throughout but your value will double, effectively halving and more your mortgage.

When you consider that the biggest challenge with building a portfolio is maintaining cash flow, why would you pay additional money into the property when you know that it's going to double in the next 7-10 years. You are far better reinvesting the cash flow in further property. Long term this more effective use of your time. It also limits the amount of tax you pay.

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