Business mogul Mark Bouris said Australians are missing out on an opportunity to leverage their family home to build wealth.
Mark Bouris explains how to use your family home to build wealth.
BUYING a house may be the biggest purchase you will ever make in your life, but it is only the start of your wealth journey — if you play your cards right.
Which apparently Australians aren’t that good at, according to The Apprentice Australia boss and founder of wealth franchise Yellow Brick Road Mark Bouris.
Mr Bouris, who is embarking on his national ‘Prosperity through Property’ roadshow this month, told news.com.au that there is a wealth — pun intended — of untapped equity in Australian property.
“There is a lot of untapped equity in Australian property today. If you look at the Reserve Bank of Australia (RBA) statistics it put out in its Financial Stability Review, there are huge amounts of redraw available and equity available in mortgages,” he said.
The statistics show that mortgage holders have a buffer which is equivalent to more than two-and-half years of scheduled repayments at current interest rates.
“And that has come about as a result of the lowering of interest rates over a long period of time, and the retained low interest rates where Australians have kept paying [off their mortgages at] their old schedule. As a result of that there is a lot of equity in the properties we own today.”
So we are building up a whole lot of equity in our homes but we just don’t know what to do with it.
‘The aim of the game is to make your money work harder than you do.’Source:News Limited
We should be investing it, according to the entrepreneur.
“The key way to secure wealth through the family home is by taking equity out of your property and investing it into something else — whether it is shares or real estate, or alternatively cashing out and putting it into your super and topping your super up,” he said.
“The aim of the game is to make your money work harder than you do.”
But before you head to your mortgage provider now to cash out, you have to make sure you have an equity buffer to ensure you aren’t putting your family home on the line. A comfortable buffer, according to the finance mogul, is 20 per cent. Don’t ever let the equity in your family home dip below 20 per cent.
WHAT DO I INVEST IN?
While “doing something” is always better than “doing nothing”, Mr Bouris also said that property is “one of the best asset groups to build a portfolio with”.
So using your family home to build a property portfolio is an intelligent — and understandable — way to build wealth.
“Property in Australia sits quite intelligently in an asset portfolio in this country,” he told news.com.au.
But you have to accept that it is a long game.
“You buy [an investment property] for a 10-year term. Over a 10-year term, it is going to go up and it is going to go down, but generally speaking the curve continues on an upward trend over time.”
He said would-be investors are often too focused on the market, rather than what they can afford, which is a big mistake.
“When [a lender] does an analysis of your ability to service a loan today, they don’t conclude the interest rates are 4.5 per cent and your current wage allows you to pay it.
“They assume the interest rate is 7.25 per cent because they build in a whole lot of rate increases. If you can afford it based on [a lender’s] analysis, generally speaking, you will be able to afford 10 or 11 interest rate increases.
“You always buy a property based on what you can currently afford, not on whether [the market] is going to go up or down, because you never know. It is a long game.”
PICKING A WINNER
The first things that come to mind when deciding on a smart property investment are usually the proximity to urban centres and facilities, and the quality of the transport to get there. But in order to pick a winner, Mr Bouris said you have to think more broadly.
“You have to look at the population growth, what is driving the population growth, who is employing and what industries those employers are in … is it a sustainable industry that is going to keep growing for a long time?” he said.
“Then you can get into all the qualitative things such as transport, education, facilities, and how long it takes to get to work.”