One of the most common misunderstandings of the uninitiated property investor is that you need a big bucket of money to invest in property. The truth is that most of us hold the key to starting a successful property portfolio, we just don’t realise it. This key is known as equity.
What is equity?
If you own your own home and it has grown in value since you purchased it, you are sitting on untapped equity. Equity is the difference between what you owe on the property and its current market value. For example, if your property is worth $650,000 in the current market and your remaining mortgage is $400,000, you have $250,000 of equity.
How can you access your equity?
The first step to accessing your equity is to have your property valued. Try to get an independent valuation done with a lender which can then be used by several lenders (you will need to check with your valuer which lender panels they qualify with).
And remember, the higher the valuation on your property, the more equity you will have to work with.
The next step is to work with a trusted mortgage broker who can give you the right advice on how best to structure your finances to leverage your equity. For example, it may make sense to extract the equity as cash and move it to an offset account.
Equity is the key to starting a successful property portfolio
Once you have locked in your valuation and have found a lender, the lender will give you a pre-approved equity limit. This will become the deposit for your next investment.
Reinvesting your equity
Once you know how much money you have for a deposit you can start the hunt for a savvy property investment. Make sure you do your research, speak to the experts and do your due diligence.
Work with your mortgage broker to figure out what you can afford both in terms of the purchase price and repayments. Make sure you also factor in stamp duty, legal fees and valuation fees.
Borrowing 80% is ideal to avoid paying lenders mortgage insurance (LMI), however if you don’t have a 20% deposit don’t let that stop you. Paying $6,000 in LMI is a small price to pay when considering market trends show a $450,000 investment today has the growth potential of $200,000 in the years to come.
Rinse and repeat
Over time as property values rise, you will gain further equity in your properties, allowing you to reinvest. Over time you will have built a property portfolio and will be building wealth.
Are you ready to leverage your equity?