Using equity in your home to invest
How to use the equity in your home to purchase an investment property
A Noosa client recently asked me what the secret to investing in property is? The truth is, there’s no secret – it’s pretty straight forward. It’s actually possible to purchase an investment property without using any of your savings. This is one of the most common ways we help first time investors kick off their property portfolio.
If you have an owner occupied home there’s a good chance your home would be valued higher than the price you initially paid for it – meaning you may have some equity in your property that you could use towards an investment property purchase.
The equity in your home could be sufficient enough to also cover all the purchase costs too – such as legal fees and Government stamp duty. This enables you to purchase an investment without having to spend a cent of your own savings.
Here’s an example of how to use equity to invest in property
After chatting with his Noosa mortgage broker, Steve took out a mortgage in 2013 and purchased his first property in Noosa. The property was purchased for $600k and Steve put up a 10% deposit plus enough savings to cover the stamp duty and costs. His loan amount was $540k.
After owning the property for 8 years he decided to get it valued. He got in touch with his mortgage broker in Noosa and arranged to have a valuer come to his house to prepare a valuation report. The value came back at $800k.
Due to the increased value of Steve’s home, he was able to get his mortgage broker to release enough equity to cover the deposit and costs on an investment property purchase. He set up an equity release loan for $100k which his mortgage broker worked out would be enough to cover the 20% deposit and costs on an investment property worth $400k which was Steve’s desired upper limit for the new purchase.
Steve decided to purchase an investment property in Tewantin for $400k. His $100k equity release from his home took care of the deposit and purchase costs. His Noosa broker then set up another loan against the investment property for the remaining $320k (80% of the properties value).
Easy peasy, investing in property doesn’t need to be difficult
So there you have it – there’s no hidden secrets to property investing. The trick is getting an experienced mortgage broker on your side that will structure your loans correctly, avoid the cross collaterisation of your home with your investment property and set-up your loans in the most tax effective way possible.
About the author: Jamie is the owner and founder of Pass Go Home Loans and operates between the Noosa and Canberra offices. If you’d like Jamie to provide you with some credit advice – just complete and return this FORM
This information is not intended to act as financial, investment, legal, accounting or taxation advice – and for that reason should not be relied upon as specific advice for your situation. You should always obtain independent, professional advice prior to making any financial, investment, legal or taxation decisions.