Using Equity to Purchase an Investment Property
Updated: Mar 9
Accessing equity in your home is an effective investment strategy for buying 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 is a tool that you can use to 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 best defines it 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.
Purchases that can be funded with equity include; cars, holidays, extending your home or starting a business. At REIF, our preference is leveraging it to invest in property and build a property portfolio to help our clients achieve the dream of owning and building their wealth.
Benefits of Using Equity to Invest in Property
There are a number of benefits of using equity to fund an investment property purchase. It can be used as an effective means to reach financial goals sooner through compounding capital growth and also monopolising on it without having to sell your property. Equity can be used as a deposit for an investment loan.
How Much Do You Need?
When tapping into equity for buying property as investment purchase, lenders are generally happy to lend 20% of the home value, without LMI. Based on the example we used above, if you were wanting to determine the useable equity that you wanted to use to fund your investment property, you would calculate it as follows:
$200,000 (Equity) - (20% X $500,000) = $200,000 - $100,00 = $100,000
Therefore, in this instance you will have $100,000 in useable equity to put towards the deposit for your investment property. The bank's will then generally allow you to borrow up to 80% of the value of the investment property.
Building a Property Portfolio with REIF
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 will 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:
Need Help With Building Your Property Portfolio?
At REIF we have a team of finance and property specialists helping investors across the country to create their financial wealth and build a property portfolio. We have access to over 10,000 properties across Australia. Reach out to make your dreams come true.
Our contact details are listed below:
Ph: 1300 130 932