How To Use Equity To Invest In Property

Things to be aware of before utilising equity to buy property

Understanding How Equity Works

When you buy a property, you are essentially taking out a loan to finance its purchase. The amount of equity you have in a property is determined by subtracting the remaining balance of your mortgage from the property’s market value. For example, if a property is valued at $500,000 and you still owe $350,000 on your mortgage, then you have $150,000 in equity.

Obviously, the more you can pay off your mortgage, the more home equity you will be building over time. It is also the case that if your home increases in value then your equity does as well. When you borrow money on any existing equity you are using your assets as security against the loan.

Property investors use equity to their advantage by allowing the capital growth on one property to help finance the purchase of another. This is known as leveraging, and it can be a powerful way to grow a successful property portfolio and create long-term wealth.

Unlocking Equity In Your Property

In recent years, banks and other lenders have introduced a range of specialised products and loans to make it even easier for individuals to unlock the existing equity they may have. Providing greater flexibility and convenience, these products allow homeowners to access their equity without having to sell their property.

One such product is the equity account, which allows investors to have more control over their funds. With an equity account, you have the freedom to choose how you access your funds, whether it’s through a lump sum or regular instalments.

Investors can also benefit from a line of credit secured by equity. This enables them to have access to approved funds up to a certain limit, whenever they need it. This not only provides financial security but also offers the convenience of having funds readily available for property investment opportunities as they arise.

How much equity can I access to invest?

The amount that banks or lenders will provide you based on your usable equity will depend on a number of factors. If you are considering applying for an equity product or loan, the bank will normally undertake a valuation of your existing home or investment home to determine its current market value. They will then also generally review your personal finances – current income and any debts you may have – as well as other circumstances such as the number of children you have.

If you are going to invest in property then the bank or lender will also want to conduct a valuation of that property before they determine the amount you will be able to borrow. Depending on the outcome of their review, the bank may determine that you can purchase the new investment property using your equity without a deposit, or even borrow more than the purchase price to ensure that you cover any additional charges or fees that may arise as a consequence of the sale.

Advantages of Accessing Equity to Purchase an Investment Property

Using equity when you’re investing in property is a great way to get a head start, and can help maximise your investment potential in the future. As with any investment, it is always important to look at your long-term financial goals to ensure that you are leaving yourself enough “wiggle room” in the form of a contingency fund for future emergencies. Don’t forget to factor in any possible future changes in interest rates, rental income and other expenses that may impact your investment.

With property investing, the benefits of using equity include:

Summary

Building a successful investment property portfolio requires careful planning and research. Using your home equity to purchase another property can be a powerful tool, but it’s important to approach it with caution and informed decision-making. By considering the various factors involved and consulting with professionals, you can make the most of your equity and achieve your financial goals.

At Ironfish, we are dedicated to empowering investors to take their investments to the next level. By providing expert advice, access to quality properties, and ongoing support, we aim to help our clients build a strong investment portfolio for long-term financial success. So if you’re ready to make the most of your home equity and build a successful investment portfolio, contact Ironfish today.