The Owners Trap

Owing your own home seems to be the ultimate goal for a lot of people, but it can also be the worst financial trap for many. It can delay your financial freedom by decades.

If you bought a house for $500,000 @ 6% interest (historical average) over 30 years (usual loan period) it will cost you over $500,000 more just in interest payments! That’s not including all your rates insurances and maintenance over that period (which could be well in excess of $100,000). So, it would cost you well over 1 million buckaroos for your $500,000 house.
 
A lot of people have experienced large capital gains over recent years. They might be patting themselves on the back thinking that they had done so well that their property value had doubled. Well, if your $500,000 property has doubled it is worth $1 million, which is break even. Whoopee doo. You are not ahead you are just keeping your head above water. And actually if you have those $100,000 expenses we mentioned, you are $100,000 worse off.
 
Some of the people not lucky enough to have bought in areas where there has been capital growth are doing even worse. Their house still might be worth 500k or a little more, but they still owe all that interest and other payments as well. Eventually totalling up to more than $500,000. Here in Perth prices are at the same value as 2006 levels. That is effectively 13 years of no growth! There are many people really struggling after being sucked into the property gold rush boom.
 
A way you could avoid all the interest is to pay the 500k outright. Most people don’t have that kind of cash sitting around, so I’ll give you another option. One of the rules I live by is to use other people’s money. That doesn’t mean begging or being a cheap stooge. It means getting other people to happily pay for my things. In terms of buying a house it means getting someone (or ones) to pay for it.
 
Before we got married we bought a house that was too big for us. We didn’t have enough furniture to fill it. A few months after we moved in we had international students(mainly from China) come and stay with us. Their payments to us paid for all of their bedroom furniture, household expenses and our mortgage. We hosted them for about 3 years until we decided to live in China (as you do). We rented the house out. The payment covered our mortgage and the price of living in China. We came back to NZ for a short time and converted the house into two units. This gave us a greater income. So that one part of the house paid for the mortgage and all other payments and the other gave us an income while we lived in China.
 
We lived in that house when we moved back to New Zealand and we rented it when we travelled and lived in different countries. Later we added additional rooms by dividing up large spaces. It gave us a better return and a higher income. We were able to have the house fully paid off in within 15 years. We initially paid a deposit for the house and paid some of the mortgage, but the vast majority of the money was paid by someone else. Thank you very much.
 
This isn’t going to work for everyone, obviously. But you can find creative ways where they can get other people to pay for their things. Most people might not want to go to the effort or the inconvenience. That’s too bad. They can stay in their comfortable prison while others can enjoy their freedom after their time of small sacrifices.

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