One of the hardest thing about starting out in property investing is saving for your deposit! However, when you hit a point of having enough equity in your own home, or investment portfolio, you can use that equity to continue growing your property portfolio.
This is what Equity allows you to do, leverage and continue to buy property without having to save for a deposit each time. However, the calculation for useable equity is not as simple as you may first think, the bank will not lend against 100% of the equity in the property, which is why you need this calculator.
Do you have enough Equity in Your property to buy an investment?
Equity is the difference between a property’s current market value and any debt held against it. Another way of thinking about it is how much of the property that you own outright. And the good news for first-time and seasoned investors is that it can be used to fund the purchase of another investment property!
You may be able to finance the entire purchase price of your next investment property, including any additional costs such as stamp duty and settlement fees. Although, this depends on your particular financial circumstances and the amount of equity available in your home. Equity can also be used for renovation, developments or even joint venture deals
Let’s say your home is worth $700,000 in today’s market and you still owe $300,000.
Most banks will generally lend you no more than 80% of your home’s current value when using equity as the deposit.
Here’s how to calculate your home’s usable equity:
• Your home’s value = $700,000 x 0.80% = $560,000
• The amount of your outstanding loans = $300,000
• Your home’s potential useable equity = $560,000 – $300,000 = $260,000
So, if your home is worth $700,000 and you still owe $300,000 on your mortgage, you have $260,000 of useable equity towards the purchase of an investment property.
But you’ll still need to show the bank you can afford the repayments on the full loan amount, which will include both the previous mortgage and the new one.
Here is the Equity Calculator below – Check how much equity you have in your property now.
Congratulations! You have used property as a vehicle to accumulate wealth and it appears to be working for you, just make sure you don’t mess it up! This is where some people can get unstuck with their investing, they use their equity to acquire lifestyle improvements like a new car or holiday! This is not what your equity is for.
Equity is there to build out your wealth for you and your family to live the life you desire.
When you pull out equity, you also have to be able to “service” that loan, which means you still need to ensure you can borrow it from the bank.
To invest your equity wisely you need to be buying investment-grade assets that are going to allow you to continue growing your wealth well into the future, without sacrificing your lifestyle.
This is what we do day in and day out here at Property Principles, you can book a call with us with the button below and we’d be happy to run through what you’re looking to do and if we can help you in anyway.
This information is general in nature and does not take into account your personal financial situation. It is for educational purposes only, and does not constitute formal financial advice. You should always seek personal financial advice that is tailored to your specific needs. All calculations are based on averages and are not 100% accurate. The assumptions made in this calculator are not suited to a person’s individual circumstances.
I am the Director of Property Principles Buyers Agency, a Qualified Real Estate Buyers Agent, Property Investor and I co run Aus Property Investor, a 12,000+ people Community.
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