USING EQUITY TO PURCHASE AN INVESTMENT PROPERTY

What’s the secret to property investing?

Someone in Canberra recently asked me what the secret to property investing is. The truth is – there is no secret

It’s possible to buy an investment property without using any of your own money. In fact, that’s how we help most customers enter the world of property investing.

If you’re currently a home owner, chances are that your property is worth more now then what you paid for it. This means you have some equity.

The equity in your house might be enough for a deposit on an investment property. It might also be enough to pay all of the purchasing costs associated with buying an investment property such as stamp duty and legal fees – meaning you don’t have to put in a cent.

Let’s use a real life example to explain how it’s possible.

After speaking with his Canberra mortgage broker, John took out a home loan in 2007 and purchased his first property in Canberra.

The property was purchased in a newish area of Canberra for $390k. John had enough for a 10% deposit plus purchasing costs so his loan amount was $351k.

After owning the property for three years, John decided to have it revalued.

He contacted his Canberra mortgage broker to organise for his property to be revalued by the bank. The value came back at $460k

Due to this higher valuation, John’s mortgage broker was able to increase John’s current home loan to $414k (which was 90% of the value of his home – this was the maximum value John’s bank would allow). This provided John with $63k ($414k – $351k = $63k) in equity to use as a deposit on his investment property.

John decided to purchase an investment property in south Canberra for $400k. His $63k in equity from his first home was enough for a 10% deposit ($40k), purchasing costs such as stamp duty ($15k) and a few minor renovations ($8k).

So…that’s the big ‘secret’. That is how you can purchase an investment property without using any of your own money.

However, it’s imperative that you use a mortgage broker who knows how to structure your home loan and investment loan correctly. The worst thing you can do is cross collaterise your home with your investment property. Unfortunately, this is what happens to a lot of first time property investors. Particularly when dealing directly with a bank.

Happy investing

Jamie

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If you’d like to have Jamie provide advice on your finance structure, investment strategy, first home purchase, upgrade or refinance simply complete and return this FORM and he will be in touch – this is a FREE, no obligation service.

The information herein is not intended as investment, financial, legal, taxation, building, development or any other advice and must not be relied upon as such. You should obtain independent professional advice and make further independent enquiries before making financial, legal, taxation, building, development or investment decisions.