How To Start Using Equity To Buy Property
Although many seasoned investors are using equity to buy property, the secret is that anyone can apply the same strategy if they understand how the process works.
Often regarded as one of the safest long term investment strategies, building a property portfolio is the ultimate wealth generation tool for many Australians, especially once they’re financially secure and have a firm grasp on their first mortgage.
Understanding The Basics Of Equity
In its simplest form, equity is the term used to describe the financial difference between your property’s market value, versus the balance of your mortgage.
Many people quietly go about repaying their mortgage without realising the potential resource they’re sitting on. Depending on your personal circumstances, unlocking the equity in your property could allow you to upgrade, make improvements to your home or even invest in a new property and start generating a second income.
The primary attraction of using equity to buy property is that it can eliminate the need to save for a deposit. All lending providers have a wide range of different terms and conditions in regards to how and when you can access your equity, with some offering access to it after as little as six to twelve months. Other factors that may influence using your equity can include:
The type of property purchased
The policies of your lender
Your servicing position with the bank
Your age and income status
Your repayment history and credit file status
Ideally owing under 80% of your existing property value
As an example, your home may be valued at $800,000 with a mortgage value of $440,000. Your lender will calculate 80% of the value of the property, which makes 80% of $800,000 being $640,000. This means your usable equity would be calculated as $640,000 (80% property value) minus $440,000 (loan size) = $200,000. Homeowners may be able to use this amount in the form of a home loan increase or line of credit secured against the usable equity.
How To Boost Equity In Your Property
Given the times, it’s understandable that not everyone is in the position to boost their available equity via making additional home loan repayments. The good news is that there are other ways.
Firstly, it’s important to note that capital growth may lift the value of the property without the homeowners having to lift a finger. Over time, property in most parts of Australia has increased in value, so it’s particularly important to crunch these numbers if you have had the property for a few years, but haven’t had any recent valuations.
To get an estimate of the capital growth on your current property portfolio, a reputable real estate agent or mortgage broker should be able to produce relevant data over the last five years for homes similar to yours, and in the same neighbourhood. For a quicker solution, there are also a wide range of calculators available online to use as an estimation tool, although they may not be quite as accurate.
In addition, homeowners can take control of their equity by boosting the value of their property through renovations. Everything from installing a new kitchen to constructing a granny flat has the potential to add thousands of dollars to a property’s value, which in turn boosts the equity levels linked to your mortgage.
If you’re unsure how to renovate for a profit, what types of properties promise good capital growth, or even how to get started on your property investment journey, it’s a good idea to seek the advice of a Buyers Agent. As the ultimate buyers advocate, a good Buyers Agent represents the best interests of investors at all times, and provides unparalleled industry knowledge and access in order to make sound financial decisions for the long term.
Meet Your Property Investment Buyers Agents
Between finding the right property, scheduling appointments, and trying to find the time to liaise with the relevant industry professionals, it’s no secret that buying property can be a stressful experience - but the good news is it doesn’t have to be.
Servicing Brisbane and the Sunshine Coast, Quantum Buyers Agents are giving buyers the edge that they need to secure their ideal property. We partner with buyers to ensure that they have access to all the market intelligence needed to successfully secure the right property at the right time, while removing the stress linked to the process. Get in touch with us today to discuss how we can help bring your property vision to life.