If you’re looking to invest in real estate, equity makes it easier for you. Whether you’re a homeowner or you’ve already acquired an investment property, the equity you’ve built up can be used to purchase your next piece of real estate.
In simple terms, equity is the difference between a property’s market value and the amount you still owe the lender. For example, you took out a loan to purchase a house worth $400,000 and paid a 20% deposit. In this case, your equity amounts to $80,000 because you still have to pay the lender $320,000. You can increase your equity over time by boosting your property’s value or reducing the amount you owe and borrow against it to fund a future major purchase, such as another property.
Why Rely on Equity?
Small-scale investors or first-time investors make up 83% of the Australian residential investment market. But most investors don’t have large sums of cash available to them. The good news is that you can use the equity you’ve accumulated instead of a cash deposit to purchase a property. Equity in property, for most Australian investors, is therefore a reliable and appealing way of gaining sufficient funding.
Below, we look at how you can increase and maximise the property equity available to you.
Decrease Your Mortgage
The most straightforward way to increase the equity available is to reduce the value of your home loan. Pay as much as you can comfortably afford towards your mortgage, and there will be more usable equity for you to use for future purchases.
Save Up for a Bigger Deposit
This goes hand-in-hand with decreasing your mortgage. At the outset, pay as much as you can towards the purchase price. This decreases your home loan and increases the value of usable equity for funding your next property purchase.
Property Renovations and Improvements
Renovating a property allows you to increase its value. Stick to pocket-friendly renovations that are likely to increase the property’s value, such as kitchen and bathroom facade improvements which can boost the sale value by up to 20%.
Don’t go overboard—the point is to increase your equity by boosting the property value, not drain your own finances. Always be conscious about the work you can afford to do. Here are simple ways to increase your property’s value.
Hold on To Your Property
Property tends to increase in value over time, therefore it makes sense to hold on to it. This, in turn, passively builds up the equity available to you in the long-term. To maximise this key fact, you should invest in locations that have great property market growth potential.
Look out for things such as an increase in business and employment opportunities, convenient access to transportation and public amenities, and planned infrastructure developments when choosing an area to invest in. These are just some of the key demand drivers that can further boost your property’s future value, increasing the equity available to you even more.
Timing Is Everything
You should keep an eye on market conditions before you use equity to purchase your next property. Why? Because market conditions directly affect the value of a property at any given time, which impacts the equity available to you as well. Property value is influenced by factors including:
- Population growth (supply and demand is a leading factor in property valuation)
- Government laws and regulations
- Tax incentives
- Economic outlook (if the economy is doing well, more people can afford to buy or rent properties, increasing demand)
- Local property market trends
The value of any property fluctuates depending on factors such as these. As such, it’s advisable to dip into your equity at a time when market conditions are more favourable for your property.
Smart Investors Seek Expert Advice
Eight out of 10 Australians don’t seek financial advice. However, as more individuals turn to property investment, demand for financial advisory services is on the rise. Before using equity to finance an investment, it’s best to speak with independent financial specialists who are experts when it comes to loans, the lending process, and property investment.
The Clever Finance Solutions team can help you make the right financial decisions, whether in terms of applying for a mortgage loan or expanding your property portfolio. We work with clients to understand their individual goals and steer them towards the best financial solution, may it be in residential property mortgages, commercial property mortgages, or cashflow finance. Get in touch with us today to know how we can help.