Has the concept of home equity been on your mind?
Home equity is a powerful tool for property investors, especially when it comes to purchasing the second, third or fourth investment property.
What Is Equity?
Equity is the difference between the market value of a property (asset) and the balance of the current loan that is owing (liability).
For those that do not have sufficient savings, utilising the equity in an existing deposit is an avenue to fund a deposit and/or a greater portion of an additional property purchase.
How Can Equity Be Used To Purchase Another Property?
To access the equity in an existing property, the lending institution will seek to establish the value of the property by undertaking a bank valuation.
Once this value is known, the lender will be able to ascertain your borrowing capacity and the ability to service a loan.
Typically, most lenders will generally allow you to borrow up to 80% of the property’s value, however, if you are willing to incur ‘Lenders Mortgage Insurance (LMI)’, some lenders may be willing to offer a loan value ratio up to 95% of the property value.
Who Should Use This Strategy?
By utilising this strategy, investors can expand their property portfolio and secure favourable tax deductions if the loan is structured correctly.
At the same time; by purchasing the right property type, in the right market, at the right price, investors have the potential to increase their net wealth position if the property increases in value over time. This is known as capital growth.
To determine if this strategy is appropriate for you, it is advised that you seek the guidance of an appropriately qualified professional such as a financial planner, accountant or legal provider before making an investment decision.
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Looking to get the property investment conversation started?
Or, just looking to stay in the loop?
Victor Erzikoff – Sales Administration and Client Liaison Manager
P: (02) 9939 3249
Disclaimer: When considering purchasing a property, it's always prudent to seek the advice of an appropriately qualified professional to determine which strategy is most appropriate for your individual circumstance.
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