Untapping Your Equity To Invest

As your home grows in value and you pay off your mortgage, you are continually increasing the equity you own in your home, and with this comes increasing opportunities.

Beyond the security that comes with owning our own home, equity is the reason we fight so hard to get into the property market.

So what is equity?

If you take the current market value of your home and subtract the amount you still owe the bank, this is your equity.

As you make repayments and reduce your debt, your equity increases. The other driver is capital growth – as your home naturally increases in value in line with market forces, that gap between market value and your current home loan grows bigger.

For example, a house bought in Mitcham in 2014 for $760,000 is now worth $1,000,000 on average.

The equity in the property is, therefore, $240,000. This is clearly a large sum that would open up many opportunities for those looking to invest.

How can I use equity to invest?

Once your equity has developed, you can use it as proof of your financial security and apply for an additional loan. While many people use this opportunity to renovate or spend the money elsewhere, often on a holiday, a smarter choice can be to reinvest in the property market.

You can help to secure your financial future by essentially using your equity as a deposit on an investment property. This is a unique opportunity and one that continually pays off in the long term for Australian investors.

How much can I borrow?

It’s not recommended to use all of your equity to secure a new loan, and risk-averse banks won’t let you. Typically, banks will assess up to 80% of your equity as ‘usable’.

As a general rule, the banks will then loan you enough to purchase a property worth up to four times your usable equity. In our example above, that would be up to $960,000.

Key tips when investing

Make sure you can afford the repayments.

  • Servicing two mortgages will clearly require more complicated financial management. Ideally, your new rental income will cover at least the interest repayments for your investment property, but at times you may find yourself needing to pay more, especially in the beginning.

Get sound financial advice

  • There are many financial and tax implications when buying an investment property, and a whole world of possible tax deductions will open up but you’ll need to make some smart decisions. Getting the right advice early before making any commitments is essential.

Buy your investment property in a high growth area

  • It is important to purchase your investment property in an area with high demand, even if it’s not somewhere you would choose to live. High demand means you can hopefully see immediate financial returns through rental income. It also means you’ll start to see equity building in your investment property as well.

Choosing the right suburb is where we Noel Jones can help. We know these parts of Melbourne extremely well, and can help you find a great property with high rental yield and strong growth opportunities.

We’ll start with finding the current market value of your house and work with you from there. If you’re ready to find out more about the equity in your home and what you can do with it, get in touch with your local Noel Jones office today.

Share:

More Posts

December market update

Vendors made up for lost time as we closed in on 2022, bouncing back strongly after months of uncertainty due to lockdowns and limits. Sellers listed in record numbers in the final months of 2021. Figures from Domain show newly advertised properties in Melbourne’s inner and outer eastern suburbs jumped by 54 and 50 per cent respectively in the year’s

November market update

Melbourne’s east is proving as coveted as ever, with Wantirna, Blackburn and Ringwood ranking among Melbourne’s 10 most liveable suburbs. The PwC Australia City-Pulse 2021 report rated Wantirna as Melbourne’s fourth best postcode, based on criteria such as access to transport and amenities, housing prices, job accessibility and open space. Wantirna South, Glen Iris and Camberwell also made the top

Seven tips for buying your first home

The hardest part of climbing the property ladder is often getting on that first rung. It’s equal parts exciting and overwhelming as you take that first step, and any uncertainty can be intensified by Melbourne’s fiery property market. While housing prices have jumped 15 percent in our city this year, there is still ample opportunity for first home buyers, with

The purpose of property appraisals – beyond selling

The emotional security of owning a home is priceless – but sometimes, you need to put a solid number on its value. Those moments are when you need a property appraisal, as an independent assessment of a property’s worth. Professional appraisals are an important part of buying or selling a house, as they can help determine how much you can

Send Us A Message