Many of us have met successful property investors who’ve talked about how tapping into their equity was the main reason they were able to grow their property portfolio. It sounds great, but how exactly do you tap into your equity to fund another property purchase?
The first step is to calculate the maximum lending you may be able to access against your existing property. Depending on your debt-to-income ratios, homeowners can typically borrow up to 80% of the value of their property, or even 90% by incurring lenders’ mortgage insurance fees. The easiest way to estimate the value of your property is by looking at comparable sales or requesting a real estate agent valuation.
The next step is Calculating your available equity. Your available equity is the maximum lending less any outstanding debt associated with the property.
As an example, if your home is worth $1 million and you borrow 80% of that amount, your total accessible equity is $800,000 less any existing debt. If your existing debt on the property is $600,000, you may be able to tap into $200,000 by refinancing or changing mortgage provider. These additional funds could be used to help fund another property purchase.
It’s important to note that an estimate will indicate what you could potentially access, but this will be subject to a formal valuation completed by the bank and bank lending criteria at the time of lending.
If you believe you are ready to tap into your equity to expand your property portfolio, it’s time to talk with your bank or a mortgage broker. They’ll be able to help guide you through the steps needed to make that next investment property purchase happen.
As Landen’s Head of Wealth, Malcolm Strain explains: ‘We have many clients who take advantage of tapping into their equity to help them grow their property portfolios. It’s not rocket science, but it’s a powerful strategy that enables investors to access more funding than they’d otherwise be able to. Now’s a great time to consider this strategy while the property market is correcting.’