ACQUIRING
The 30s are the new 20s
Why taking a 30-year bond is better as a property investor
We have many paradigms or sets of ideas that are not accurate . When a paradigm is inaccurate , a paradigm shift is required . In other words , we need to change our approach or sometimes our underlying assumption about the topic at hand .
" It ain ’ t what you don ’ t know that gets you into trouble . It ’ s what you know for sure that just ain ’ t so .” - Anonymous
For example , if you Google the above quote , you will find that it is widely attributed to Mark Twain . But this is inaccurate . So , if you dig a little deeper , you will find that no one can be quoted for saying or penning down the exact quote , and therefore , the author remains anonymous .
A Good & Bad Debt
Another inaccurate paradigm we have is about debt . Most of us are taught that debt is bad and that you should work any debt you have off as quickly as possible . This is a noble idea , especially when it comes to bad debt , consumer debt or using debt to live above your means . In these cases , the debt paradigm is actually very good .
However , the underlying assumption or premise that all debt is bad is incorrect . All debt is not bad , and this paradigm is not necessarily applicable to good debt . A good debt is the debt against an asset that appreciates in value or the debt on an asset that generates or will generate a higher return than the debt ’ s interest rate .
The property ’ s annual return can be defined as the property ’ s capital growth during that year AND the net rental yield for that year ( rental income minus expenses such as rental commission , levies , rates and taxes , maintenance ) as a percentage of the purchase price . When I have debt on a property where the property ’ s return is more than the loan ’ s interest rate , my goal is to pay off that loan as slowly as I possibly can .
20 APRIL 2021 SA Real Estate Investor Magazine