One of the most powerful elements of property investing is that you can access the equity you have in your current property to continue to invest and grow your portfolio.
It can be a misconception that you need to have huge sums of money to grow a large portfolio when in reality, you just need to wait for the natural growth that occurs over time and leverage the equity that has been created.
Equity is simply the market value of your property, less the money you have owing on it.
For example, if your property is worth $500,000 and you have a mortgage of $300,000 remaining on the property, then you have $200,000 in equity that you can access to continue to invest. Building on this example, if the value of your property grew further to $600,000, that would mean that you would then have $300,000 in equity in which to invest. This highlights the power capital growth can have, when it comes to building a large property portfolio.
The first step in accessing the equity you already have in your home is to get your property valued. It is important to get it valued by an independent valuer who works with a range of lenders. We can guide you on this process. Similarly, we will also be able to help you structure your loans in a way that will be most suitable for your situation. For instance, you might want to cash out a portion of your equity and leave it in an offset account to use as a deposit on an investment property.
It’s also worth noting that to access the equity in your home, you will still need to meet the normal requirements from the lenders when applying for a home loan. Mainly, that means you will need to be able to service the loan based on your current income and expenses.
We can assess not only how much equity you can access, but also work out a pre-approval limit for your next purchase. We can also discuss the pros and cons of Lenders Mortgage Insurance, if you are considering borrowing more than 80% of the property’s value.
Returning to the example of our property that is worth $500,000 with a $300,000 mortgage – while you have $200,000 in equity, you may only want to access $100,000, which is 20% of the property’s value. These funds can then be used to pay for the deposit on another property as well as additional costs such as stamp duty, settlement and your valuation expenses.
Over time, we know that property is an appreciating asset and when your properties rise in value, you will be creating more and more equity that you can continue to access. This is how you can build up a large portfolio, with only the one initial deposit on your first property.
If you would like to chat to us about finance or property, please give us a call on 02 8004 2222 or book an appointment.
Although we are located in Crows Nest, we service clients from St Leonards, Artarmon, Wollstonecraft, Cammeray, Northbridge, Naremburn, Neutral Bay, Greenwich, North Sydney, Waverton to Willoughby and all areas of Greater Sydney.
PS This article is prepared based on general information. It does not take into account individual financial or property objectives or needs and is not financial product or investment advice.