Do you know that you can use the equity of your home as a deposit to buy a 2nd property without using your own cash? If you think property investment is something you’d like to explore, here are a few concepts you need to consider before deciding how to fund your investment property purchase.
What is equity?
Equity is the difference between the current value of your property and the amount you have left on your loan. Let’s say, for example, your property is valued at $900,000 and you owe $500,000 on your home loan. In this scenario, you have $400,000 equity in your home.
Lenders can lend up to 80% of the value of your property, subject to your ability to borrow and repay the loan. In this case, you may be able to release up to 220,000 to invest.
The great thing about equity is that it makes it possible for property investors to refinance a loan and access funds to use as a deposit to buy other properties. The more properties you have, the more equity that you could build as the value of your properties go up.
We’ve created a video to further explain what an Equity is. You can watch the video here.
What are the ways to build more equity in your home?
- If you are lucky to buy your first property that has gone up in value in the last 12 months, then you should have equity built in your own home at this stage. According to a recent Corelogic report, Australian housing lifted by 1.8% in April. Property prices in Sydney jumped 2.4 per cent in April to a median value of $950,457, according to the CoreLogic Home Value Index released on Monday. Values in Melbourne increased by 1.3 per cent over the month to a median of $744,679. Although growth conditions have slowed, housing values are 10.2% higher than the COVID low in September last year. A property with a market value of $800,000 last year may now be worth around $880,000 or more depending on location.
- Renovations is another way of boosting the market value of your home. Updating kitchens and bathrooms, adding a new bedroom or improving landscaping are just a few ways you can build equity in your home.
- Reducing your debt by making extra repayments in your home loan is another way to build equity. Every additional dollar you pay above your required monthly repayment reduces your debt and adds up to your equity.
To find out if you’re ready to consider investing in property, speak to a Maverick Finance Broker who’ll be able to walk you through the process. As always, all of us at Maverick Finance are here to support you on your investment journey. You can get in touch with us by calling 0430 144 008 or send us an email at firstname.lastname@example.org, or simply leave your contact details and we’ll call you back.