Unlock Your Home's Potential - How to leverage your equity and become a property investor!
Equity is the amount of your property that you actually own, which you can calculate by taking the total value of the property and subtracting the outstanding amount of the home loan. The more you invest in your home, the more flexibility you will have with your home loan. Are you getting the most out of your equity? If you have ever wondered how property investors seem to keep buying properties without saving up for years to put down a deposit. It’s because they’re using a tactic called leverage: using the equity generated by the rising value of an existing property to purchase a new one. This property then grows in value, allowing the investor to repeat the process and buy again.
So how do you work out the equity you have in your home? The first step is to have your home valued by a Real Estate agent. Depending on the current state of the housing market, this could vary significantly. But, notwithstanding that, let’s look at an example. If your property is valued at $470,000 and you have a mortgage of $189,000, the equity in your property is $281,000.
This amount could potentially be used as deposits on 2 investment properties, covering the deposit, stamp duty and buyer’s agent fees for both purchases. Using equity in this way minimises risk by keeping cash in your pocket. You are not using your cash reserves but the equity in your property which is not currently working for you.
Is it risky?
There are risks involved in any property purchases and leveraging equity to buy investment properties is no different. First and foremost, you have to be certain that you can service all the mortgages you’re taking out, otherwise you could lose some or all of your assets. Conducting thorough research is essential to avoiding a bad investment. Make sure you have a solid and clear strategy (are you intending to flip the property or are you buying to hold?) and are buying in a good suburb.
Plan of attack
It’s essential that you plan ahead before you start refinancing. A good mortgage broker should be able to help you with this process. It’s important to have a clear plan of how you’re going to set out your finances. When you make the decision to unlock the equity in your home, make sure you contact your mortgage broker or, if you don’t have one, find one.
Leveraging equity growth in your existing properties can help you build a property empire faster – as long as you set it up correctly from day one and do your research. Otherwise, you could find your portfolio collapsing faster than a house of cards.