Posted on March 12th, 2024

How To Use Equity To Invest In Property

Equity acts like a powerful tool in the world of property investment. It provides investors with the opportunity to leverage their investments and gain access to larger sums of capital to purchase investment properties, without having to put up all the money themselves.

Property equity refers to the difference between the current market value of a property and any outstanding mortgage or debt owed on that property. In simple terms, it is the portion of the property that you actually own.

Things to be aware of before utilising equity to buy property

Loan Terms and Interest Rates: Understand the terms of the equity loan you’re considering, including interest rates, repayment schedules, and any associated fees.
Impact on Equity: Utilising your home equity reduces your stake in your property and can impact future borrowing power.
Market Conditions: Consider the current real estate market conditions. Property values can fluctuate, impacting the amount of equity available for borrowing.

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:

Maximising the return on your existing property: By using equity from your current home or investment property, you can potentially increase the overall value and returns on both properties.
Ease of access to funds: As equity is already built up in your property, it can be easier and quicker to access compared to other forms of borrowing.
Potential tax benefits: Depending on the structure of your investment and loan, you may be able to claim certain expenses and deductions associated with the use of equity for investment purposes.
Diversifying your portfolio: Investing in additional property using equity can help diversify your investment portfolio and spread-out potential risks.
Building wealth: By leveraging your equity to invest in additional properties, you are essentially using the power of leverage to grow your wealth over time.

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.

April 16th, 2024 / Data & research, Equity

Manufacturing Instant Equity Through Property Investing

Have you ever wondered how some investors seem to magically make money in real estate right after purchasing a property? The secret isn’t anything supernatural or even complicated. It’s simply about understanding the concept of manufacturing instant equity through property investing. By

April 11th, 2024 / Property trends, Data & research

Affordable Australian real estate under $650K

Not every property investor has a massive budget to work with. In fact, there are still a lot of affordable options in the Australian real estate market for those looking to buy under $650K. Finding an investment-grade property in this price range might involve more research, but the results are wel

April 9th, 2024 / Property trends, Data & research, Financial wellbeing

Should I Buy a House Now or Wait Until 2025? Navigating Australia’s Real Estate Market

Despite the succession of interest rate hikes from the Reserve Bank of Australia (now on pause), 2024 is shaping up to be a promising year for the nation’s property market. Despite a 4.25% increase in the official cash rate over the past 18 months, research suggests a strong rebound in property pric

April 1st, 2024 / Message from our CEO, How to invest, Financial wellbeing

Break barriers! Boost earnings with self-improvement and reach your investment goals sooner!

Did you know that one of the most common misconceptions I hear about becoming a successful property investor is that you have be ‘rich’ to begin with. Disappointingly, this negative point of view is also used as an excuse for some people to just give up or not even start their property investing jou

March 29th, 2024 / Data & research, Financial wellbeing, How to invest, Property trends

Where should I buy my next investment property?

If you’re wondering where you should buy your next investment property, you’re not alone. Many real estate investors struggle with this decision and for good reason – choosing the right location is key to a successful investment. When it comes to investing in real estate, many fact