Did you know that more than 2.2 million Australians own one or more investment properties? And did you know that if you are currently paying off (or you own) your current home, then you can use the equity in it to buy an investment property?
Using your equity allows you to avoid the need to come up with a large upfront deposit for an investment property. Read on to find out more.
What is equity?
Equity is another word for ownership. Even if you are paying off your own home, you will have partial ownership (equity) in it. The amount of equity you have in your home is its current market value less the amount you owe on your mortgage.
For example, if your home is worth $1,000,000 and you owe $450,000 on your mortgage, then you have $550,000 equity in your home.
There are two ways that your equity increases:
1. The home loan repayments you make.
2. Your property increasing in value.
Australia’s property boom in recent years has seen the equity of most property owners increase significantly.
Why buy an investment property?
Buying an investment property is a great way to build your long-term wealth. That’s because an investment property provides you with:
1. Ongoing rental income from tenants that you can use to help you make your investment property loan repayments and other expenses.
2. Tax benefits (unlike your residential home, and investment property expense is tax-deductible against your rental income, including loan interest, rates, and repairs and maintenance expenses).
3. The opportunity for long-term capital growth. History shows that Australian property prices in strategic locations increase significantly in value over time.
The Greater Springfield region is popular with investors because it is in South East Queensland’s Western Growth Corridor between Brisbane and Ipswich. This region is currently experiencing booming population growth and significant infrastructure development.
Greater Springfield is still also a very affordable property market with average prices below the neighbouring Brisbane market, yet it’s only just over 30 kilometres from the Brisbane CBD. The region is also delivering strong rental yields for investors due to strong tenant demand.
How to Access Your Home Equity
There are several ways to tap into your home equity to fund an investment property purchase:
1. Home Equity Loan (or Second Mortgage)
A home equity loan allows you to borrow against your home’s equity as a lump sum. This loan is separate from your existing mortgage and comes with a fixed interest rate. You’ll need to make monthly payments on both your original mortgage and the new loan.
2. Home Equity Line of Credit
A line of credit allows you to borrow funds up to a certain limit, only paying interest on what you actually use. This gives you flexibility, as you can draw from the line of credit as needed to cover expenses related to your investment property.
3. Cash-Out Refinance
A cash-out refinance involves refinancing your current mortgage. This allows you to access a large amount of equity while replacing your original mortgage with a new one at a potentially lower interest rate.
Each option has its own pros and cons, so it’s important to consider your financial situation and investment goals before deciding which route to take. Consulting with a financial advisor or mortgage broker is a smart step to ensure you choose the best strategy.
How our Purple Cow team can help you
Whether you’re a seasoned investor or looking to buy your first investment property, tapping into your home equity can make it happen faster. If you’re thinking about buying property in the Greater Springfield region, then contact us today for an obligation-free chat.
