Should I pay off my mortgage before I start investing?

Written by Lisa Dudson Rock Your Life Global Sage www.acumen.co.nz

This is a highly debated topic in the financial community, with some people for the idea and others against it. I personally think it depends. That’s not an overly helpful answer so let’s look at why….

From a purely financial or technical perspective you are usually better off paying your mortgage off before you start a savings or investment programme. This is because you pay your mortgage with money you earn after tax. Therefore being better off financially by investing you need to earn a return of approximately 10-12% gross per annum (about 7-8% after tax) depending on your personal tax rate. There are not many investments that will produce this level of return unless you take on a reasonable amount of risk and/or know what you are doing.

Is Property Investment a Good Option?

Written by Lisa Dudson – www.moneytv.co.nz

Question
My problem is property investments.

I really want to buy investments properties and rent them out.  I’ve studied the Rotorua (small town) property market and even though it is cheaper than Auckland (large centre) I still can’t make money.  I’m wanting a property that will pay for itself through its rental income. By the time I take mortgage repayments, rates and insurance costs out of a rental income I still need at least $100 per week of my own money to pay for it (and that without maintenance cost). Do you have any suggestions?  Is there another way around this problem?  Or is investment property not viable anymore?

Buying vs Renting

Written by Lisa Dudson – www.moneytv.co.nz

Question
We have decided not to buy a house and that we are better off renting and saving some extra money.  Have we made the right decision?

Answer
For most people their home is the most significant asset they will own in their lifetime.  Not only does owning your home provide shelter, but also through mortgage repayments it provides a compulsory form of saving.  In the last twenty years or so in New Zealand, home ownership has dropped from around 75% to close to 67%.  Statistically speaking that is quite a significant drop.  The trend seems to indicate that the number of Kiwis owning their own home is continuing to decline.