How to Use Equity to Buy Investment Property
Using equity in your current home or one of your current homes to purchase an investment property may seem like a confusing and difficult concept to wrap your head around. Using equity in your current home gives you a variety of options that will allow you to purchase an investment home, which in turn can make you substantial passive income in the future. Continue reading below to learn about what exactly equity is, and how you can use it to purchase an investment property. We will also talk about how our team of experts at Whitehouse Real Estate can help you with the investment property purchase.
What is Equity?
In simple terms, equity is the difference between the current value of your home and the amount that you owe on your mortgage. For example, if your house is worth $750,000, and you owe $400,000 on your mortgage, you have an equity of $350,000. If house prices increase, you can grow your equity while you continue to make mortgage repayments.
Obtaining a Home Equity Loan
One of the most common ways of tapping into your available equity is by applying for a home equity loan. An equity loan can be used for anything from kitchen renovations to purchasing an investment property. The bigger the deposit you initially made, combined with how much you have paid off from your mortgage, the higher the equity loan you will be able to access. A home equity loan is essentially a second mortgage, which means it is a debt that is secured by your property.
What is an Equity Release Loan?
An equity release loan is a slightly different way of tapping into your equity in order for you to obtain a further loan. It involves a lender, such as a bank, giving you cash in return for a portion of the profit once you sell your initial home down the line. Unlike a home equity loan, which you begin to pay back as soon as you have acquired the loan, a release loan is only settled after you have sold your property.
Before Purchasing an Investment Property with Equity
Although it may seem like a great idea, there are still a number of things that you should consider prior to buying an investment property with equity. For example, you must take into consideration the ongoing costs of an investment property. Do you need to carry out renovations? Does the structure of the loan repayments suit your current financial situation?
How Whitehouse Real Estate Can Help
At Whitehouse Real Estate, our team of highly experienced and trusted real estate agents can provide you with financial experts who can offer advice to hold you in good stead for future property investments. After years of working in the Sydney and Northern Beaches areas, we know what a good investment is and what a bad investment looks like. This, coupled with solid financial advice, will set you in good stead for making the right investment choices.
For further information, get in touch with us online or call our friendly staff today on 02 9948 0666.