How To: Use Your Equity to Purchase an Investment Property

Are you eager to invest in a property but find yourself short on the cash needed for a deposit? Well, if you're already a homeowner, there's a way to have your cake and eat it too, especially with the recent property boom in Australia that has seen existing homeowners' equity soar. You can put that equity to good use and here's everything you need to know about buying an investment property with equity in Australia.

Understanding Equity

Firstly, what is equity in a property? It's simply the difference between your property's current market value and the outstanding loan amount. For instance, if your home is valued at $800,000 and your outstanding loan is $500,000, you have $300,000 worth of equity in your house. This equity has likely grown significantly in recent years thanks to rising property values.

How Equity Works

The beauty of equity is that you can use it without selling your home, by using it as security with the banks. This means you can borrow against your equity to finance various endeavours such as home extensions, starting a business, buying a car, going on a vacation, or purchasing an investment property.

Calculating Usable Equity

To determine your usable equity, which is the amount you can access and use, you'll need to consider that banks typically lend up to 80% of a property's market value. Subtract from that the amount you owe on your home loan, and the remainder is your usable equity. It's possible to borrow more than 80%, but this may incur additional costs like Lenders' Mortgage Insurance (LMI). For example, if your property is valued at $800,000 and your outstanding loan is $500,000, you could have $140,000 in usable equity. This usable equity can be used as a deposit or part of the deposit for buying an investment property. However, your borrowing capacity also depends on your ability to service the loan, especially considering potential future interest rate hikes.

Using Equity as a Deposit

When it comes to using equity to purchase an investment property, you can effectively use your equity as a deposit. The first step is to request a property valuation from your mortgage broker or lender to assess your property's current market value. This will help determine your usable equity. Keep in mind that the loan product you choose and the amount of equity you want to access may result in various fees and costs, such as Lenders' Mortgage Insurance or government fees. 

Handling Your Equity Responsibly

Lenders look at things like your income, expenses, debts and more to decide if you can buy property with equity. So, make sure whatever you do with your property equity follows good investment rules.

If you're not sure how to invest in the current property market, it's a good idea to talk to experts. They can give you a solid plan to build wealth, help you make smart decisions, and deal with the ever-changing property market. 

If you’ve been thinking about harnessing your equity to invest in an apartment, then look no further than our projects in Glen Iris, Oakleigh and Sandringham. Call 1800 267 687 or fill in the form below.

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