One of the best property investment tips for novice property investors from those in the know is for them to find out how to maximise their investment potential by using any existing equity they may have in existing property.
The concept of equity is simply the total value of your assets (including property) minus any debts. A good example of this is if someone owns a home that is valued at $500,000 and they have a mortgage of $350,000, then a bank will calculate that they have existing equity of $150,000. Obviously the more you can pay off your mortgage, the more 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. Essentially if you borrow money based on any existing equity you may have you are using your assets as security against the loan.
These days the banks and other lenders have made it easy for people to unlock the existing equity they may have by offering specialised products and loans designed for this very purpose. Equity accounts, for example, allow people to choose how to access funds, including whether they want a lump sum or regular installments. This means they can decide to use the money for a range of purposes including holidays and cars, purchasing other assets such as investment property or shares. A line of credit, secured by equity, means that borrowers can use the approved funds up to a certain limit whenever they want as well.
The amount that banks or lenders will provide you based on equity will depend on a number of factors. If you are considering applying for such an equity product or loan the bank will normally undertake a valuation of your existing home or investment property 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 be investing 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 without a deposit, or even borrow more then the purchase price to ensure that you cover any additional charges or fees that may arise as a consequence of the sale.
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 that it is always a good idea to get professional financial assistance when considering any change in your financial position, including taking on extra debt or buying assets.