Why your fancy payoff your mortgage idea is doomed to failure if you don’t follow this one thing


– So, let’s ask this question again. – [Christina] Just make sure
you are in the shot, obviously. – No, we’ll turn in the
shot, we’ll be fine. (group laughing) So, ask me the question again. – So, when you have the offset account, does that only pay off one of the loans, or does it cover all of the loans? – Okay, the offset account
only covers one loan. – Okay. – And the primary reason
we use an offset account is because that’s where you’re getting the biggest return on your money. But it’s only a temporary holding place because we’re gonna end up
cashing out of the offset account to buy more property,
and grow our portfolio. Because, see, this is the
thing people gotta realize, we’re not here to
actually own the property. People get confused about
this, very confused. Because people think
what you’re trying to do is buy a property, pay if off, and own it. We’re not doing that at all. Actually, complete opposite. What we wanna do, is the
only thing we wanna do, is control the property. And you might be asking, “Why do you wanna control
it and not own it?” Because you’re getting the same
benefit out of the property whether you own it or control it. But it’s a lot cheaper
to control than own it, so what would you prefer to do? – [Christina] Control it. – Control it. For example, the jockey that was
riding Phar Lap, right? Now, he doesn’t own the horse, does he? – No.
– No. – But what does he do? Control it. He controlled it, and
he won the Melbourne Cup by controlling Phar Lap, he didn’t need to buy
and own a horse, did he? – No.
– No. – He just needed to control it. So, I don’t know if this
metaphor’s gonna work, but I tried it anyway. (laughs) So, basically, what we’re
doing is using equity, or the little, smallest
amount of deposit that we can, to end up buying properties,
and we wanna control them for the small amount of equity you can, and around $30 a week, right? And what happens is
properties double every seven or 10 years. So, because of that fact,
by controlling an asset that’s gonna double
every seven or 10 years, for $30 a week, we can
get a $400,000 property and in seven to 10 years,
it’s gonna be worth 800, we’re gonna make $400,000 on that, right?
– Yeah. – So, now, what we could do is, let’s say we get 10 houses, right? And that’s $30 a week each, right? That’s $300 a week. – Yeah. – And there’s 10 houses, we’re not owning, we’re just controlling ’em. They’re all $400,000 each. So, at the end of seven to 10 years, they’re gonna be worth 8 million. We’re gonna make $4 million. And it’s gonna cost $300 a week, right? – Yeah. – Ooo, this is gonna be good. Let’s say instead, what we do is we buy a
property for 400,000. But we’re gonna put in
an extra 270 a week, to pay it off quicker, because we wanna own this property, right? 270 a week, can you pass
me a calculator, Christina? Or, have you got a calculator, can you? – Yeah, I’ve got a calculator. – Okay, can you give me the
yearly and then 10 years figure? – 14,000 per year, times 10, 140,000. – Okay, so, this $400,000 house is gonna end up being 800,000. – Yeah. – We’re gonna make 400,000
plus, how much we pay off? – 140,000. – Which is 540,000, instead of 4 million, what would you prefer to have? – 4 million. – Same amount of money, but one mentality is trying to own it, with $300 a week, and the other mentality is controlling it. See, by controlling more properties, we get more benefit out
of the market going up. By only trying to buy one property, we’re gonna still gonna owe, we’re not even gonna pay
it off in those 10 years. And we’ve just spent all our cash flow, trying to pay off this property. People that are tying to pay
off their property are nuts! You can’t do it. A house is bigger than you,
it’s gonna outperform you. You can’t beat it, so why bother? And that’s the whole point. People are going, “We want
principle interest,” right? Forget this principle and interest stuff! I mean, how much principle
do you think you pay in the first 10 years? Hardly anything at all, but it
destroys all your cash flow. And instead, I’ll be smarter, I’ll leverage my $30 a week, over 10 properties, instead of just one. Same expenses, however, I’m gonna make 10 times
more money, minus 144,000. Which is, so there you go. I mean, if you tried to
pay off your property, that $400,000 property is
gonna take you 25 years. However, in seven to 10 years, I could pay off five properties, with $30 a week per property. Because if 4 million goes up to 8 million, I got $4 million equity to pay. Actually, that will pay
all of ’em off, won’t it? Yeah.
– Yeah. – It’ll pay all my
properties off, completely. – Would you sell your property’s debt to pay off all your properties, or– – No, no, I’m happy to have debt, I still wanna control em’, even after they’ve doubled
in seven to 10 years, I wanna control them, take my
equity out, and control em’, I don’t want to own ’em, ever. – How do you take the
equity out, do you just– – Refinancing. – Refinancing. – I never actually wanna own
em’, cause I’m not interested, ’cause then, let’s say I’ve got 20% equity in my properties, right? Then, I’m getting five times return, which is a safe amount, which is awesome. So, if property averages 7%, I’m actually making 5 times
that, which is five times seven? – 35.
– 35. – 35%, there you go, pretty awesome. – So if you bought 10
properties for $400,000 each over 10 years and they
all grew to 8,000,000, so a total net worth of $8,000,000. – Yep. – With the refinancing
can you take that money into your pocket, or– – Yes you can. So what I did, when I
retired, I pulled out 350,000 out of one of my properties that went up. – Yeah. – And put it in an offset account. – Yeah. – So, therefore, I had that
money in case I needed it, ’cause I wasn’t working. – Yeah. – And then I bought a convertible
Porsche, I went overseas, I bought heaps of stuff. – Yeah. – Partied on, and because
I kept having that 180,000 coming back into my account per year, – Yeah. – It kept topping it up. So, I wasn’t even eating into it too much. – [Christina] Nice. – Isn’t that cool? And obviously, you guys understand, the reason I was renting, ’cause I didn’t wanna
destroy my cashflow at all. – Yeah. – So, if I bought a property
on the beach it would have cost 180,000, roughly, in payments. – Yeah.
– However, I was paying 50,000,
saving myself 130,000, which I was making pay off
in that offset account. And, luckily, my landlord
was subsidizing my rent by 130,000 a year. He was working his ass off. He was making a lot of
money, though, 800,000. So, for him it was a good tax deduction. – Yeah. – So, it was slightly different with him because of the high tax that he paid. – Okay.

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