What I learned from Monopoly

If you are a working DINK (Dual Income No Kids), one investment strategy you may want to consider is owning property. What I like about owning property is that it can generate passive income and your tenants pay down your debt and increase the value (equity) of that property at the same time. Becoming a landlord is not for everyone but there are strategies to avoid bad tenants and alternatives to expensive property management companies. We strongly recommend “Rich Dad Poor Dad” for anyone interested in learning more.

The first step is to get pre-approved for a mortgage. This way you know how much you can afford based on salary before you go shopping. I recommend 3-5 year variable rate, bi-weekly payments, over the shortest term possible (25/30 years)

Second, work with your partner to create a site selection criteria. Write it down as this will help you to stay objective and compare houses

Third, consider rental income as “mortgage helpers”. If you can prove an existing rental, most banks will consider 50% of rent as part of your income assessment

Fourth, buy house and declare as principal residence. Get aggressive in paying down your principal. We made significant lifestyle choices like not paying for cable, eating out less, and spending smart so that we coud make extra payments. The idea is to build equity as fast as you can. Also consider, if your mortgage is 3.5%, paying down the principal is like getting 3.5% return on your buck.

Fifth, once you have built up equity, there will be a tipping point when you can consider taking out a second mortgage against your principal property to buy an investment property. If you get to here, you’re on your way to earning passive income.

Lastly, I would consider converting the mortgage on the investment property to high interest low principal (opposite to advice on principal residence) because you can declare the interest as tax deductible. If you are on salary, you may be able to use this tax deduction to get a tax refund. Which you can then use to pay down the principal on the investment property.