Pay Down Debt or Buy An Investment Property? - Teach Me About Property

For many property investors, there’s one question that comes up over and over: Should I focus on paying down my debt, or should I buy my next investment property? According to TMAP CEO Massey Archibald, this is the number one question he’s asked by property investors. So, let’s break down his answer once and for all.

Building a Portfolio vs. Paying Down Debt: Which Comes First?

Massey’s advice is straightforward: if you own fewer than five properties, your focus should be on building your portfolio, not on paying down debt. For early-stage investors, the key to growing wealth is acquiring more assets. When you have fewer than five properties, paying off debt should take a back seat to expanding your investments.

Why Focus on Expanding the Portfolio?

The biggest mistake Massey sees investors make is stopping too soon. Did you know that 71% of property investors in Australia own only one investment property? They buy one property, but they don’t take that next step. There are two main reasons why so many investors stop at just one property:

1. Loss of Focus: Many investors start with the right mindset—they play what Massey calls the “wealth game.” In the wealth game, the focus is on earning income, saving, and putting that money into assets that appreciate. They use the equity and income from these assets to buy more. But then something changes—they shift to the comfort game. They feel like they’re doing “pretty well” with one property, so they sit back, put their feet up, and stop pushing for more.
2. Fear of Debt: The second reason people stop investing is fear. They start focusing on the debt they have and confuse asset debt with consumer debt. In the comfort game, reducing debt is the goal, but it’s only relevant for consumer debt—things like credit cards, car loans, and personal loans. Paying off consumer debt is wise, but asset debt is different. Asset debt is the fuel for building wealth. If you treat it the same as consumer debt, you risk stalling your progress.

Why Asset Debt is Different from Consumer Debt

Understanding the difference between consumer debt and asset debt is crucial. Consumer debt—like credit card debt or car loans—should be minimised. But asset debt is what allows you to own valuable assets that appreciate over time. Rather than aiming to reduce asset debt, the goal is to increase it by acquiring more properties.

Think about it in terms of returns:

• If you own $1 million in property and the market rises by 10%, you gain $100,000 in equity.
• If you own $10 million in property with the same market increase, you gain $1 million.
• With $100 million in property, that same 10% growth translates to $10 million in equity.

The more asset debt you have (through properties), the greater your potential to build wealth as the market grows.

Keep Playing the Wealth Game

The bottom line? Keep playing the wealth game, not the comfort game. Build your property portfolio to gain more equity, and don’t fall into the trap of treating asset debt the same way as consumer debt. The comfort game may seem appealing in the short term, but for long-term financial success, it’s all about expanding your assets.

So if you’re deciding between paying down debt or buying another property, remember: for investors with fewer than five properties, the goal is to build your portfolio. Don’t let fear or comfort hold you back from growing your wealth.