A Property Investor’s Financing Hacks
A Property Investor’s Financing Hacks
Gone are the good old days of ‘lay-by’ (remember that?), and the not so ‘older days’ of buying something you couldn’t afford. It was the original form of delayed gratification and budgeting for things we wanted. So how do you fund those big purchases in the modern day?
Whether you’re looking to invest in property, renovate or pay off something big, borrowing against the equity in your home may be helpful. The equity in your property can be a valuable resource, as it may allow you to secure finance to achieve your goals, whether they be investment or lifestyle-oriented.
What is Home Equity?
Equity can make a huge difference to a person’s life and financial outlook. Home equity refers to the current market value of your home (which won’t necessarily be the price you purchased it for), minus the amount of money still owing on your home loan.
As the market value of your property can go up or down, so too can the equity you have in it rise and fall. To find out how much equity you have currently, you can organise a property valuation through various banks, lenders and independent agents.
What do people use home equity for?
The equity in your home can be used to secure finance for a variety of things. When you use your home equity, you’re effectively increasing the amount you owe to your lender and using your home as security for your borrowing. It is wise however to think about the long-term impact of taking on added debt. Investing your money wisely could help you to increase your income, while borrowing money to pay for holidays or things that depreciate in value will come with greater risk.
What big-ticket items can equity be used for?
1. Renovations (both structural and cosmetic – however, large-scale structural renovations will likely require a construction loan)
2. Purchase of future investments (be it shares or another property)
3. Purchase of a holiday home
4. Purchase of a vehicle or boat
5. Payment of a holiday or wedding
6. To pay off short-term debt such as: car loans, personal loans, credit cards (as long as there are no dishonours) and HECS debt
7. Debt consolidation
8. Education expenses
How to use equity to buy another property
1. Leverage on the growth in your first home to fund a deposit for the next home.
2. Tap into your equity to attain your 20 percent deposit to purchase more property in the future. This way, you dont use your oan personal savings.
3. Use rental income to assist in paying off the mortgage, and if needed, you can use negative gearing to assist in offsetting tax. You can recycle this process the larger your portfolio becomes to be able to purchase more properties down the line.”
4. Engage a skilled and qualified broker with personal experience in investment properties to ensure that you can continue to service these home loans while continuing to live your ideal lifestyle without breaking the bank.
WAYS TO GROW YOUR HOME EQUITY
- By renovating and improving your home’s street appeal. The key here however is to avoid overcapitalising, which is when the cost of renovations outweigh the value added to your home in the process.
- If your property is in a high-growth area or you’ve owned it for a number of years, the property may appreciate in value without you doing anything. However, depending on property market variables, the reverse could also happen.
- By reducing the size of your home loan, which you can do a number of ways.
Accessing the equity in your home could help you to achieve your goals. However, it’s important to stick to a workable budget and be committed to making your repayments on time.
REFERENCES
- How to use home equity to pay for big-ticket items
By Sonia Taylor
- What is equity and how can I use it to invest?
By Capstone
- WHAT IS EQUITY & HOW TO USE EQUITY TO BUY AN INVESTMENT PROPERTY
By Chartered Wealth Management