When it comes to property investing, a single amount of capital can be leveraged to purchase property after property. You can use this strategy to diversify your portfolio, purchasing a range of properties in many different markets. This strategy can help you to expand your wealth while decreasing your risk - and that’s a recipe for long-term success.
In this post, we’ll discuss how to expand your investment portfolio using property equity. Once you’ve purchased your first investment property, you can access your equity and use it again and again. We’ll start by looking at several different financing options.
Option #1: A Cash Purchase
If you’ve held a property for a long time, it may have increased in value enough that you could potentially draw down on the equity which would allow you to fund a cash purchase of another property.
Some Australians are finding that property values have increased so much in some areas that they can refinance their properties and gain access to enough equity to fund a cash purchase in an area with lower property values.
These purchases are simple, straightforward and quick. Once the refinance is complete, the purchase of the next property is easy. After all, without another loan to work through, you’re an attractive buyer. You put yourself in a stronger negotiating position when you can settle quickly and shorten the buying process.
Option #2: A New Loan
If you don’t have enough equity to buy another property with cash, you can use your equity as a deposit for you next investment.
For example, if you have $100,000 equity in your current property, you can borrow money against that equity. In most cases, lenders are willing to give you up to 80% of the value of the equity. In this case, you’d have $80,000 to use as a deposit on a new loan.
With that $80,000, you can make an offer on a property that is worth up to $400,000, significantly expanding your assets and giving you another property that you can leverage in the future when it has appreciated sufficiently.
Focus on Cash Flow
If each of your investment properties has a positive cash flow, you can continue this process indefinitely. The problem that some investors run into is that they purchase properties that end up costing them money. This limits the number of properties you can afford and puts a strain on your personal finances.
By purchasing properties that cost you less than the amount you receive in rent (positively geared properties), your properties sustain themselves and possibly even pay you a little extra each month. this will provide you with a passive income stream which can be used to service other debts and expenses.
Increasing Property Values
Most properties increase in value as time goes by simply due to inflation and the economic cycle, but if you’d like to increase your property value more quickly, there are strategies you can use to do just that.
One strategy property investors use to increase value is to buy properties that need renovations. These properties are often sold at discounted prices. When you renovate them, you increase both the value and the rental income of the property. Thus, you have better cash flow, and you quickly gain the equity necessary to fund the purchase of your next rental.
Monitor Your Portfolio
If you want to expand your investment portfolio using property equity, you’ll need to carefully monitor your properties. Don’t allow them to fall into disrepair. Also, it’s important to keep tabs on the market in general and on your personal finances.
Keep accurate records of your incomings and outgoings so you have a good idea of what your cash flow is at all times. Take care of your properties, and choose tenants who will also take care of them. If you hire a property manager, keep tabs on them and switch to a new manager if your properties are neglected. It’s hard to make your properties work hard for you if you’re not taking care of them.
By choosing your properties wisely and leveraging their equity periodically, you can significantly expand your holdings and provide well for your future. For more information about our specialised lending services, contact us at Altus Financial.
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.