Do you feel like the bank owns you?

Of course, reducing non-deductible debt is one of the major goals of most property-related financial strategies. Nothing wrong with that, whether it's by paying down the principal (and split refi later for investment), using an offset account, or using a debt recycling product.

The mentality that I don't understand is "I want to own more of my house than the bank."

 

My daughters I was a child bride, that's my story and I am sticking to it

 

I don't see what's not to understand. Paying down non-deductible debt gives us more financial freedom and investment choices.

 

I interpreted it wrong then Your wording sounded to me like many people I've come across who think all debt is a bad thing and try to keep everything to themselves

 

I don't necessarily agree. Depends where you are in your investment journey, and can the money you want to use to reduce non-deductible debt with be used more effectively via further leveraged investments. Just my opinion.

 

I agree that it depends on where in the journey you are. We have a few IPs that are neutral and want to focus on reducing non-deductible debt for a couple of years and let the LVRs drop a bit.

 

I guess that's in line with your risk profile and goals, which is really all that matters. Well done.

 

I don't feel like the bank owns me, or my IPs even though I just realised with the two IPs I currently control, I don't actually have a single cent of my own cash invested in either of them!

How do you calculate return on investment, when the initial "investment" is zero?

 

I'm looking at this from the side, and thinking of the benefits of actually having a mortgage besides having the money from the loan..

Any title that is unencumbered, can be found out, and a fraudster can take a mortgage on it.

In addition, it can be sold by someone else (fraudster) without having to jump through a bank's conveyancing hoops.

Read the 3rd paragraph from the bottom:
http://www.canberratimes.com.au/act-news/police-probe-macgregor-property-scam-20140721-zvers.html

 

We had one here for a few years until I mortgaged it again. I had it laminated, stuck on the fridge with the kid's artworks and I stared at it every day for a few months until the novelty wore off. It was quite a let down really, not even written in Old English script! I hear that these days there aren't any paper titles, they are all cyber-online only.

 

It has been our policy from the outset of our investing career to always have a mortgage registered against every property we own purely to ensure that there is another check in a sales process.

Lets face it which bank will ever release a property title if there is a loan balance (ultimate security) or even if there is no loan balance remaining. In the case where there is no loan balance remaining at least they have insurance and can certainly be sued if they incorrectly released the title.

We have even followed this procedure in the USA with each property we purchased having a registered mortgage lodge that is owned by another of my Australian entities.

As a result of this policy we have mortgages on all of our properties but have a LVR <10% over our whole portfolio or even <0% when taking into account alternate investments we hold.

So to answer the question I don't feel like the bank owns me in any way whatsoever

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I use my primary place of indebtedness for play money. Sometimes I hold the title, @ other times the money fairies. Its a well worn piece of paper.

 

I've held the title for 2 properties now, first I paid cash for and the conveyancer sent me the title via registered post, the second was my ppr, after paying off the loan, the bank sends a letter to the custodian of the title [it's a misconception that the bank holds the title, the title is held in trust by a third party] in my case I think it was Perpetual. Perpetual contacted me to tell me I would need a lawyer for them to deal with but I sent them a bank cheque and they released the title to me anyway. When I sold the house it made the transaction easier and cheaper because I held clear title.

 

I do not think about it as per the question, I want funds, bank needs to know I will pay or hand them something, if it bothered me any I guess I would not ask them for money.

I suppose it depends on how you look at things too.

 

It is a legit concern, I have had multiple fraud attempts by people.

But do not think solicitors, councils, water authorities etc cant be fooled, they can.....

 

Only when the repayment is due, and there is too much repayment left at the end of the repayment funds to pay it.

Otherwise; it is a very nice 50/50 JV venture.

Nah; seriously; once the Loans are in place?....set up the Direct Debits for the repayments, and then pretty much forget about it....a budgeted cost of living.

 

Their PPoR is a form of investment....just not a cash return investment.

I would argue though; the majority of folks who are held up from other forms of investing due to PPoR debt - are those who are paying the minimum repayments on it, and spending the remainder on lifestyle, and haven't got either the discipline to pay more off their PPoR LOan than the minimum, or are not financially educated enough to know they could/should do it.

 

Noel Whittaker has wrote numerous financial advice books and generally prefers shares over property. However, his approach is that people should aim to get their 30 year mortgages down to 10 years worth of repayments. E.g. aim to pay off as much PPOR debt as you can when you initially purchase the house to save wasting money on interest repayments. Once you have 10 years of theoretical repayments left the amount you're paying off in principal on the PPOR outweighs the benefit of paying the PPOR off any faster as you're incurring an opportunity cost on your cash, which should then be used to be invested. He also urges people that are debt free to use the money that they were forced saving previously with their mortgages to invest it in shares. E.g. if you were paying $1600 a month on your mortgage even though you're debt free you should spend that $1600 purchasing shares each month. The conventional approach is most people don't even start looking to purchase IP's until they are debt free with their PPOR.

I took a different approach and rentvested so when I had my IP I never felt like I was indebted to the bank since I looked at it as OPM (other people's money). In hindsight it would've been better for me to keep rentvesting and accumulating a couple more IPs instead of having an IP + PPOR (if I was single I would've kept rentvesting). Personally I just want to pay my PPOR debt down as fast as possible now and would only ever release equity from my IP for another purchase at this stage. So I definitely agree with your point because it's certainly the case for me.

 

Re: the question, "Do you feel like the bank owns you?"
Well, perhaps for me in my case you could say they more or less do atm...
I get my day to day income from them, spend around 40 hours a week directly working for them and I am currently in debt to my employer over 6x the annual income they pay me...

But of course, (being an Australian citizen), i'm not on a work sponsored visa and I am completely free to get a job elsewhere should I choose to do so.
So no, I do not feel they own me. It's a win-win relationship.