Savvy investors should look to recycle their equity as quickly as possible. Once the property experiences growth, a valuation should be prepared by your bank in order to determine your overall equity. This process can be repeated as often as annually.

How to use your lazy equity

Below is a simple visual representation of how you can turn your equity into something substantial. The key is to duplicate this process in order to build a larger, more sophisticated property portfolio.

Source: Property Buyer, 2016, http://www.propertybuyer.com.au/

How much do properties grow in value?

This is never an easy question to answer. The below figures detailing Sydney’s median house prices over the past four decades go some of the way to answering this question.

1980 – $68,800
1990 – $194,000
2000 – $287,000
2009 – $547,000
2016 – $1,050,000

There’s a clear pattern in how properties have grown each decade, with the most recent median prices growing exponentially.

With the right advice and financial structure, you can use your lazy equity to continuously grow your portfolio.

What now?

If you’re keen to grow your portfolio, follow these steps:

1. Revalue your property: first things first, make sure you get your property valued. It will give you true transparency on what your financial situation is before you make any decisions.
2. Recycle your equity: do this after making considered, educated decisions. Ensure you seek the help of professionals to assist with your choices. A mortgage broker and financial advisor are a great place to start.
3. Get the equity moving: engage with property professionals to seek out a great investment purchase which is capable of providing you with high capital growth and strong rental yield.

To get your equity to work for you, contact CPS Property today to discuss your investment options.

What is ‘equity’?

Equity is the difference between your property’s market value and the amount owing on the mortgage. For example if your property is worth $500,000 and you owe $300,000, your equity value is $200,000. The key piece of information to remember here is equity is based on “market value”, which means if you’ve renovated your property since the purchase, or you haven’t had it valued in a couple of years, you could be sitting on a lot more equity than you realise.

How does it work?

When purchasing another property (with a decent amount of equity already under your belt), you can access 80 per cent of your equity as security with the bank, which automatically eliminates or reduces the need for a deposit on your next purchase. This is also known as “useable equity”.

As a general rule of thumb, according to NAB, to calculate how much you can borrow from the bank -multiply your useable equity by four. So in this case $200,000 x 4 = $800,000 borrowing capacity. However, this can vary based on several variables and will depend on your bank and unique financial status.

Can you use your home to buy an investment property?

Yes. How wonderful is that? Many homeowners are in a great position to use the equity from their owner occupied property to begin building their property portfolio. However it is important to remember to pay off your personal home loan as fast as possible as this isn’t tax deductible unlike interest on an investment property which is tax deductible.

What’s next?

Like any major financial purchase, it’s important to do your research and engage with a financial professional to assist you with your long-term strategies. Understand the scope for capital gains and impact on cash flow, and ensure you don’t over capitalise and therefore put unwanted stress on your hip pocket.

Contact CPS Finance today to discuss the property investment options available to you.