Are you thinking about buying an investment property? Are you wondering how you’ll afford the deposit?
The price of property has increased in recent years so if you have owned your own home for a while, you may be able to use your home’s equity.
What is Home Equity?
Home equity is the difference between the market value of your home and the balance of your loan. For example, if your Property is worth $500,000, and your loan is $300,000 then your home equity is $200,000.
How does it work?
One way of doing it is having one loan but two properties. You would use that $200,000 in home equity (from the example above) to put towards a new property. That may outright buy the property or be a very large deposit and you would extend the loan to cover the difference (with the tenant covering the difference in mortgage payments).
Another option is separate loans. This would mean refinancing your home loan to use the equity and then securing a second loan for the balance of the rental property.
Chat to the experts
Before making any decisions on what to do with your property and the new ‘windfall’ of home equity talk to your property investing team. You need to find out how much you have in home equity and what you can really do with it. It depends on your strategy and what you are hoping to achieve with your primary residence. The bottom line, however, is that your home equity is a valuable resource, which you might be able to use as leverage to extend your property empire.
Have you used home equity to buy an investment property? If not, how did you raise the capital?