Monopoly has been a classic board game for over a century. It's a real estate trading game played for fun... and for a chance to be a real estate tycoon. The game rules are interesting as there are some valuable lessons all investors can learn to win at the game of property investing.
In my daily work, a common theme I see is that people generally don't have a good handle on their money. Money is no longer simple and most transactions are electronic with no physical exchange of cash. This could be part of the problem, however I think it's more than that. Let me explain...
Depending on your age, you may recall the good old days when loyalty was a positive attribute (relating to banking) and doing business with the same bank worked in your favour. Nowadays, this is no longer the case as maintaining a home loan with the same lender for many years is costing you, irrespective of how good the deal was when you first took out the mortgage.
As the saying goes, if you're standing still, you're going backwards. Up until 6 months ago, deciding on P&I or IO repayments was easy, as the interest rate was the same for either, and the repayment type didn't impact your borrowing capacity. Today, it's a very different story.
Knowing your financial priorities is now even more important when it comes to borrowing money, in fact it will be your secret weapon. Borrowing money is necessary (for most people) when buying a home or an investment property. The debt you take on, and the order which you do it in, will impact how much you can borrow and when.
Humans are driven by different priorities. When it comes to borrowing money, some people are focused on the interest rate, some are focused on the repayment amount, whilst others care less about either and just want the cash to achieve their bigger picture.
When an asset performs as strongly as property does, particularly in major capital cities like Melbourne and Sydney over the last few years, many people jump on the bandwagon. Some do it for strategic reasons, whilst others do it because every else is.
I have no doubt that you're familiar with the TV reality show The Block, hosted by Channel 9. The reality show is currently running its 14th series at a site in St Kilda, Melbourne. The show has attracted a very large audience over the years, making it a very profitable venture for the network. Has the success of The Block derailed you as a property investor?
A major conversation topic for home loan borrowers right now is... Principal & Interest (P&I) or Interest Only (IO)..? As boring as the topic may sound, it's very important to address it given that ~75% of the Australian population has a home loan or an investment loan.
Interest rates are a hot topic right now. Up until recent times, home loan rates were identical to investment loan rates. Over the last few months, banks have been slowly increasing interest rates to the point where Interest Only (IO) loans are 1% higher than Principal & Interest (P&I) loans. With a 100 basis points price difference, one must consider whether it still makes financial sense to pay IO on your mortgage.