Using equity when buying an investment property
Updated: May 27, 2022
Accessing equity in your home is an effective strategy for buying an investment property. It's a tool that many investors leverage to build their property portfolio and increase their wealth. Our team at REIF work with many clients across the country to access their equity to invest in property. Equity can help you establish security with the banks, especially if you are accessing it for buying property for investment purposes.
What is equity?
First of all, it may be helpful to understand what equity is. NAB cleverly defines equity as, "the difference between the current value of your home and how much you owe on it."
For example, if you purchased a home that was worth $500,000 and still owe the bank $300,000 on that property, you have $200,000 in equity.
You can use equity to fund the purchase of cars, holidays, home renovations, or starting a business. However, our favourite way of using equity is through investing in property.
The benefits of using equity when buying an investment property
There are various benefits of using equity to fund the purchase of an investment property. Equity can help you achieve financial goals sooner as it allows you to compound apital growth and monopolise without having to sell your property. Equity can be used as a deposit for property investment.
How much do you need?
When utilising equity for property, lenders will generally lend 20% of the home value, without LMI. Based on the example provided earlier, if you were wanting to determine the useable equity that you wanted to use to fund your investment property, you would calculate it as followed:
$200,000 (Equity) - (20% X $500,000) = $200,000 - $100,00 = $100,000
Therefore, in this instance you'll have $100,000 in useable equity to put towards the deposit for your investment property. The bank's will then allow you to borrow up to 80% of the value of the investment property.
How REIF can help you build a property portfolio
The above process can then be replicated to continue growing your portfolio. Many investors use that process to fund multiple investment properties and create their wealth. REIF helps investors source out positively geared properties that'll allow them to see a return on their investment.
We have a team of property experts who source out newly, established properties that will provide investors with a healthy rental income. A healthy rental income will allow investors to pay off their loans quicker and see the property consistently grow in value, to put more money back into their pocket.
David explains this process in our video, How to: Use equity to purchase an investment property:
Find out more about how we can help you by reaching out on the details below.
Ph: 1300 130 932