By Julie Azzi on December 7, 2017

Debt: The Strategic Property Investor's Secret Weapon

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With all of its negative connotations, debt generally falls into the “things to avoid” category. But savvy property investors know that debt can be a powerful secret weapon, allowing you to capitalise on your existing equity and building your wealth at a much faster rate. 

In this post, we’ll delve into how you can use ‘good debt’ to strategically build your real estate wealth and investment portfolio.

 

Evaluate Current Debt

Not all debt is helpful to property investors. In fact, bad debt can affect your interest rates or even limit the amount you can borrow. Bad debt includes consumer debt such as credit cards and loans on cars, boats, or other personal property.

Work hard to eliminate bad debt in order to maximise your borrowing potential for your property investments. Start by paying off your debts with the highest interest rates.

 

Calculate Your Equity

Good debt is debt you acquire to purchase more assets, and in the case of property investors, those assets are additional properties. One of the most attractive traits of owning a property as an investment, is that they almost always appreciate over time. 

When you first acquire a property, there may not be much difference between the amount of debt you have on the property and the amount the property is worth. But each month, if you are making principal and interest loan repayments you will be reducing the amount you owe on the property. At the same time, the property is probably appreciating, so the gap between your debt and the value of the home is ever widening. At some point, it makes sense to cash in on that equity and use it to buy another property.

 

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Re-evaluate your equity on a regular basis to find out if you’re in a position to cash in on your equity. Most mortgage lenders require a down-payment of at least 10% of the value of the new property. If you regularly calculate your equity, you’ll know when you reach the 10% mark for the next property you’d like to purchase.

 

Cultivate a Good Working Relationship with a Trusted Lender

Property investors rely on the services of many different professionals, including lenders. Find a good lender by talking to other property investors, reading reviews, and interviewing lenders. Explain your strategy and intentions - good lenders will help you create workable solutions for funding your property purchases.

 

Create an Equity Strategy

Evaluating the current life cycle stage of your financial life is an important step when looking to develop your equity draw down strategy. How close are you to retirement? How much risk are you willing to assume? How much time do you have for managing your investments? 

Tapping into your equity as often as you can will help you if you are interested in building a portfolio of property investments at the quickest possible rate. With property values rising quickly in most areas of Australia, property owners are finding that they have plenty of opportunity to use their equity to make additional purchases and grow their wealth.

 

Keep Your Eyes on the Next Step

Once you acquire a property and get it up and running, it’s easy to become complacent. If your goal is simply to have one or two properties, then you will have achieved your goal and can sit back and watch your investment work for you. 

If you want to continue to expand your business and your wealth, however, make a habit of keeping your eye on the next step at any given time. Be on the lookout for properties that suit your goals, and watch the property values in the areas in which you’re already invested. Read the news about Australian property markets and learn about upcoming infrastructure projects and investment opportunities.

It’s an exciting time to be a property investor in Australia. With a strong economy and rising property values, the opportunities are vast. For more information about our lending services, get in touch with us at Altus Financial.

 

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Julie Azzi

Julie is a Loan Specialist at Altus Financial and she works with clients to help them seek the right loan and loan structure that suits their needs. Let's Connect