All About How Using equity to buy an investment property

All About How Using equity to buy an investment property

By using your homes equity, you can potentially buy an investment property.

When it comes to investing in real estate, equity is a key concept to wrap your head around.В The Successful InvestorsВ Michael Sloan explains what equity is, and how you can use it to your advantage.

What is equity?

Equity is the difference between the current value of your home and how much you owe on it.

For example, if your home is worth $400,000 and you still owe $220,000, your equity is $180,000.

The great thing is, you can use equity as security with the banks. This means you can borrow against your equity to fund lifes big purchases, such as:

  • extending your home
  • starting a business
  • buying a car
  • going on a holiday.

You can use also use equity to buy an investment property and get into the real estate game.

Total equity and useable equity

Banks will typically lend you 80% of the value of your home – less the debt you still owe against title loans bad credit it. This is considered your useable equity.

Since the bank is lending you money against the value of your home, they wont lend you the full amount. Put simply, if house prices dip, they dont want an outstanding loan thats worth more than your property.

Keep in mind that its possible to borrow more than 80% if you take outВ Lenders’ Mortgage InsuranceВ (LMI).

How much can you borrow?

Using the example above, lets say your home is valued at $400,000 and your mortgage is $220,000. Heres the breakdown of sums:

  • value of your property – $400,000
  • value of your property at 80% – $320,000
  • minus your mortgage – $220,000.

This means your useable equity would be $100,000.

Learn how toВ estimate your propertys equityВ using the NAB app.

Using the ”rule of four”

When it comes to actually buying an investment property, it can be hard to know where to start.

But a simple rule of thumb is to multiply your useable equity by four to arrive at the answer. Continue reading “All About How Using equity to buy an investment property”