Over two million Australians own a second property. Some do it to invest in real estate and increase their wealth, while others simply want to improve their lifestyle with a holiday home. Whether you share the same sentiment or not, purchasing a second home is a huge decision not to be taken lightly. Continue reading […]
Unlocking the Power of Equity: A Guide to Buying Investment Property with Ease
Investing in property has traditionally been a popular path to building wealth for many Australians. For homeowners with accumulated equity, it presents an opportunity to expand their real estate portfolio. In the Australian real estate market, despite the peaks and troughs, property values have shown consistent growth over the years. This is why many people choose to tap into their equity to build their investment property portfolio. But how should you go about it?
We’ll explore how you can harness the power of equity to purchase an investment property. Additionally, we’ll delve into Deltos Finance’s expert guidance — how they may help ensure a seamless & successful investment journey.
First, Let’s Talk About Equity and Usable Equity
Equity reflects the difference between your property’s current market value and the outstanding amount you owe on your mortgage. When you purchase a property with a home loan, you make regular mortgage payments to reduce the loan balance, and over time, as property values appreciate, the equity in your property grows. Equity can be thought of as a form of wealth you have built up in your home.
For instance, if your property is currently valued at $500,000, and you still owe $100,000 on your mortgage, your equity in the property would be $400,000. But the question is: can you access and use that equity to buy an investment property?
This is where understanding the term “usable equity” comes in handy. Usable equity refers to the portion of equity that lenders take into consideration when assessing your borrowing capacity. While you may have accumulated significant equity in your property, not all of it may be accessible for borrowing purposes.
You can determine the usable equity by calculating 80% of your property’s current value and then subtracting the outstanding mortgage amount. So using the example above, if your home is currently valued at $500,000 and you still owe $100,000 on your mortgage, you can calculate the usable equity using the following equation:
$500,000 x 0.8 = $400,000
Subtract $100,000 in existing loans.
Therefore, your usable equity would be $300,000.
When you know your usable equity, you can make informed financial decisions, such as using it to invest in another property or financing other significant expenses.
Leveraging Usable Equity: Strategies for Buying Investment Property
Now that you understand the difference between equity and usable equity, it’s time to learn how to buy investment property with equity. Here are some strategic ways to leverage usable equity and capitalise on the Australian real estate market’s wealth-building opportunities:
Home Equity Line of Credit Loan
A home equity loan, also known as a line of credit or equity loan, allows homeowners to tap into their usable equity as a separate loan. This additional cash can be used as a deposit for an investment property. Homeowners generally only pay interest on the amount used, gaining flexibility & control over their financial situation.
Equity Release
Refinancing your existing home loan may enable you to access additional funds from your usable equity, which can then be directed towards the purchase of a rental home or any investment property. This strategy may involve changing your loan structure, terms or interest rates to suit your investment goals better.
Cross-Collateralisation
While less common, cross-collateralisation involves using the equity in your current property as security for an investment loan. It’s when a loan (or multiple loans) are secured by multiple properties. This approach can help to reduce risk for the lender, which sometimes helps to get a better interest rate, and may offer taxation benefits. However, cross-collateralization may carry higher risks for the homeowner. This is because your property portfolio loans are with one lender and the cumulative values impact your overall loan to value ratio (LVR). This can cause complications when seeking more finance or looking to sell one of your properties. Hence, seeking expert advice is essential before considering this strategy.
Key Considerations Before Buying Investment Property with Equity
As with any significant financial decision, it’s essential to assess your circumstances and the potential implications of using equity to buy an investment property. Here are some critical factors to consider:
- Financial Stability: Evaluate your financial stability and capacity to manage the additional financial responsibilities of owning multiple properties. Consider factors such as rental income, property management costs and possible vacancies.
- Investment Strategy: Define your investment strategy and long-term goals. Determine whether you seek rental income, capital appreciation, or a combination of both. Then, align the investment property with your overall wealth-building plans.
- Loan Structure: Speak to a mortgage broker to determine the most suitable loan structure for your situation. The right loan structure can impact cash flow, tax benefits and long-term returns on your investment.
- Risks and Rewards: Understand the risks and rewards associated with property investment in the Australian market. Spend ample time conducting thorough research on property market trends, rental demand and potential capital growth in the chosen location.
Deltos Finance: Your Trusted Partner in Property Investment
Simply put, using home equity to buy investment property requires expert guidance — Deltos Finance is here to help. As Hobart’s #1 mortgage broking team, our experienced brokers specialise in assisting Australian homeowners with their property investment dreams. We may start with a comprehensive assessment of your financial situation to determine the amount of usable home equity. Then, we’ll explore the best loan options that align with your investment goals.
Our extensive network of lenders allows us to secure competitive interest rates and loan products in the Australian market. More importantly, we handle the paperwork, negotiations and application process, making the journey from equity to investment property ownership seamless and effortless.
With Deltos Finance’s expert guidance and personalised support, you can confidently unlock the potential of your equity and embark on a successful investment journey. Reach out to us today to get started.
Enquire Now
Find Your Perfect Finance Solution
Let's discuss your finance needs. We’re here to help.
More posts from Deltos Finance
![deltosfinance blog pictures (1) Top view of a property development site](https://deltosfinance.com.au/wp-content/webp-express/webp-images/doc-root/wp-content/uploads/bb-plugin/cache/deltosfinance-blog-pictures-1-1024x576-square-68feddbc5f110af256c48b9458629389-.jpeg.webp)
Bridging the Gap: Bridging Loans for Property Development
In property investment, timing is everything. Whether you’re eyeing a prime development opportunity or planning to flip houses to upgrade your portfolio, the ability to move quickly can make all the difference. This is where bridging loans may come into play. They offer a fast, flexible financing solution to bridge your financial gap between property […]
![A local mortgage broker shaking hands with a client.](https://deltosfinance.com.au/wp-content/webp-express/webp-images/doc-root/wp-content/uploads/bb-plugin/cache/stock-photo-close-up-of-business-people-handshaking-square-938cfde32195ad771c81ca9c8367fad4-.jpg.webp)
Maximising Your Local Mortgage Broker Relationship
Whether buying your first or second home or investing in multiple properties, having a trusted local mortgage broker by your side can make all the difference. The right financial guidance and local insights can point you in the right direction and make your real estate decisions pay off. You can get better results if you […]
![HOBART, AUSTRALIA, FEBRUARY 22, 2020: Elizabeth Street Pier in H Buying a holiday house in a tourist spot like Hobart can be a good move.](https://deltosfinance.com.au/wp-content/webp-express/webp-images/doc-root/wp-content/uploads/bb-plugin/cache/stock-photo-hobart-australia-february-2020-elizabeth-street-pier-hobart-australia-square-f850196006b9de1f017197902af149c7-.jpg.webp)
Buying a Holiday House: Holiday Let vs Buy-to-Let
It is incredibly enticing to escape to a cosy beachside retreat on weekends or stay in a charming mountain cabin during the holidays. Owning a holiday house is a dream for many Australians; it can also be a savvy investment strategy. However, deciding whether to use your vacation home as a holiday let or a […]
![buying a second home buying a second home](https://deltosfinance.com.au/wp-content/webp-express/webp-images/doc-root/wp-content/uploads/bb-plugin/cache/buying-a-second-home-1024x576-square-bb64d5efdee688b6f6ee3cc6ebf8e9a3-.jpeg.webp)
Is Buying a Second Home Right for You?
The idea of owning a second home can be incredibly appealing. It could be a holiday house or an investment property that can generate additional income. But is buying a second home the right decision for you? Let’s explore the key considerations and steps involved in purchasing a second property in Australia. Top Reasons for […]
![stock-photo-modern-australian-family-house A house in Australia can have equity over time.](https://deltosfinance.com.au/wp-content/webp-express/webp-images/doc-root/wp-content/uploads/bb-plugin/cache/stock-photo-modern-australian-family-house-square-0249eaa964146a7d3824ea0b83ab2568-.jpg.webp)
How to Use Equity to Buy Another Property
As a homeowner, you’re sitting on a valuable asset that can do more than provide a roof over your head. Your property’s equity can be a powerful financial instrument to help you buy a second home or expand your real estate portfolio. So, whether you’re dreaming of a holiday home by the beach near Carlton […]
![stock-photo-caucasian-woman-open-mail-letter-document-envelope-home-receiving-bank A woman ecstatic about receiving home loan approval documents.](https://deltosfinance.com.au/wp-content/webp-express/webp-images/doc-root/wp-content/uploads/bb-plugin/cache/stock-photo-caucasian-woman-open-mail-letter-document-envelope-home-receiving-bank-square-0f73cb477e82c781c452f47e7f0ef189-.jpg.webp)
What to Know About the Home Loan Approval Process
Understanding the home loan approval process and knowing what to do at each stage can make it less intimidating. Today we’ll guide you through the stages, including what to do before lodging your application, when to apply, important considerations, and the support and tools available to make the process smoother. Before You Apply: What You […]
![cash out refinancing cash out refinancing](https://deltosfinance.com.au/wp-content/webp-express/webp-images/doc-root/wp-content/uploads/bb-plugin/cache/cash-out-refinancing-1024x576-square-192f22c0c8b7d4d3db74735b4ecfcc53-.jpeg.webp)
Cash-Out Refinancing: Tapping into Home Equity
As a homeowner in Australia, you may have built up significant equity in your property over the years. But did you know you can tap into this equity to access cash for various financial needs? This is where cash-out refinancing comes into play. In this article, let’s explore what cash-out refinancing is, how it works, […]
![stamp duty exemption stamp duty exemption](https://deltosfinance.com.au/wp-content/webp-express/webp-images/doc-root/wp-content/uploads/bb-plugin/cache/stamp-duty-exemption-e1719883098532-1024x895-square-69d16bc493ccc430d5922ecf5c4246c5-.jpeg.webp)
No More Stamp Duty: Tasmania’s Gift to New Homeowners
Imagine stepping into your first home without the burden of thousands of dollars in stamp duty. Sounds too good to be true? Well, for Tasmanian first-home buyers, this dream has now become a reality. The Tasmanian government has just delivered a game-changing gift that could save you up to $28,945 on your first home purchase. […]
![shared equity scheme shared equity scheme](https://deltosfinance.com.au/wp-content/webp-express/webp-images/doc-root/wp-content/uploads/bb-plugin/cache/shared-equity-scheme-1024x576-square-84afdf75e68901cc62edf3cfbbdb1008-.jpeg.webp)
The Australian Shared Equity Scheme Explained
These days, it’s not easy to break into the property market. That’s especially true for young and first-time homebuyers who encounter several obstacles, especially amidst rising inflation and interest rates. But don’t fret because there are ways to make homeownership more accessible and affordable. One of which is shared equity. The Australian shared equity scheme […]