Many homeowners looking to generate an additional revenue stream beyond the 9-5 daily grind are potentially missing out on an easy entry to property investment – using equity. Equity is the difference between what your home is worth and how much you owe on it.
By using your home equity as security with the bank, you can borrow against it to purchase an investment property. This avoids the need to save for a deposit - allowing you to own an investment sooner. Typically with a good credit history, banks will lend up to 80% of the value of a property less any debt you still owe against it, or potentially more if you’re prepared to pay Lenders Mortgage Insurance (LMI).
As the value of your investment property rises over time, you can use this equity to refinance and purchase another investment. This property will in turn rise again, allowing the investment pattern to continue. This is known as leverage, or borrowing to increase the potential return of an investment.
“Using equity to get a foothold in the market is a great way to start building an investment portfolio,” shares Glen Lucas, Director of Lucas. “By using equity, you are able to keep cash in your pocket – minimising the impact on both your cash-flow and lifestyle. It also fast-tracks investing – it takes a long time to save money!”
When planning to invest, it pays to seek expert advice from your accountant or financial planner on how to best structure your investments, ie. whether to negative or positive gear for tax purposes. This will not only allow financing and repayments to be set up in a tax-effective manner but also to ensure the long-term affordability of your investment. Whilst banks may deem you can afford an investment worth up to four times the value of your useable equity, it’s always wise to do your sums, including factoring a rate rise or two into the equation.
Homeowners seeking to explore their current equity status can receive a free personalised property report by contacting Chris on 0417 999 070 or firstname.lastname@example.org
Our team at Lucas are proud to be Melbourne’s vertical living experts – for advice or assistance in purchasing an investment property, contact us on 9091 1400.