So you want to make the most of low interest rates and rising property markets and build a bigger property portfolio?
Unfortunately, those same low interest rates make it much harder to save for a deposit the old fashioned way. But that doesn’t mean you can’t climb up the property ladder. That’s where equity comes into the picture.
Equity is the amount your property is worth minus what you still owe on it. Basically, it’s the portion of the property that you own outright. If you owe $200,000 on a property that’s worth $300,000, your equity is $100,000. If that property rose by another $50,000 in value the next year and you paid off another $10,000 of it, your equity would go up by $60,000.
If you already have at least one property, chances are that it’s gained in value over the past 12 months.
Revaluing it can unlock that extra equity, so that you can use a portion of it as a deposit on your next investment property.
New way of thinking
Back in the days when interest rates were high, the biggest hurdle to buying property was actually paying off the loan. Deposits were easier to save because your cash was boosted by those same high rates. So, saving a 20 per cent deposit on a $100,000 property didn’t take long, but paying it off could take 30 years!
These days, super low interest rates mean servicing a loan is the easiest part. But saving a 20% deposit, plus stamp duty costs when there are returns of less than 1% interest on the cash you have in the bank is much more difficult.
And this is basically why property investors have been dominating first home buyers at the affordable end of the market in recent years. They have equity ready to use as a deposit while the first home buyers are stuck trying to save money.
So how do I do it?
First things first, talk to the experts. Zinger Finance has a team that specialises in helping people build big property portfolios by using smart financing strategies and regularly pulling equity out of their assets.
Zinger can organise a valuation on your existing property. If, like most real estate in Australia, it has increased in value since its purchase or last valuation, you will have made some equity.
But you can’t use it all. Say for example, you have $200,000 equity on a property, the bank won’t let you use the full amount to invest because it would be exposed to too much risk if there was a dip in values for your existing property, or new property.
Instead, they will allow you to access a portion of it. Usually around 80% of your existing property’s current value minus the debt still owing.
So, in the case of that example property at the beginning of this article; if it’s now worth $350,000 and you owe $190,000, your overall equity is $160,000.
But your useable equity might be $280,000 (80% of $350,000) minus $190,000. That leaves you $90,000 to invest with.
The Zinger difference
A lot of mortgage brokers set you up with loan products where you are locked in and unable to refinance for a certain period of time (usually years). This ensures they receive their full commission from the lender.
But Zinger Finance aren’t like your typical mortgage brokerage. They’re a team of Mortgage Strategist. It was founded to cater to property investors looking to build big property portfolios and one of the ways to do so is to ensure you have the flexibility to revalue and refinance as often as you need to.
Zinger’s team of strategists can help you get your properties valued and revalued regularly to unlock all the useable equity you need, at the right time to help you reach your property investment goals.
If you need help building a strategy to climb the property ladder by maximizing your use of equity and being educated on the best way to structure loans, get in touch to our team of Mortgage Strategists.