Make Your Equity Work For You And Invest For Long
Every common man dreams to be a millionaire and have cushy and comfortable life. However the reality of the life is that most of us have to work hard to earn money. Some of us believe in working smart and not hard, to make money.
One of the smart ways to make money is invest in property market. One has to be very careful when investing money in any property. You have to look at return on investment. When you buy any property you need to look at the potential capital growth in the property. The factors that affect
potential increase in value of any property are school zone, nearby amenities, public transportation, home improvements and potential renovations etc.
Key thing to this investment that one needs to understand is that investment usually starts with buying your First home and then climbing the property ladder. After buying a property and keeping it for 2 to 3 years, usually one decides to either utilise the equity and buy another property, or sell existing property and up size and buy another bigger property.
As a Financial Adviser we come across this situation on regular bases. I always tell my customers to invest in a property for a long term and use the equity efficiently to build property portfolio. I can share an example of how one can use equity on their existing property to buy another investment property.
Scenario: Mr A has Owner occupied property worth $1,000,000. Current Home Loan is $350,000. His income is $80,000 and his wife’s income is $45,000. He wishes to buy a rental property of $700,000 for which rental appraisal is $550 per week.
In this instance Mr A can borrow maximum up to $420,000 on investment property with the purchase price of $700,000 as he needs to put 40% deposit which is $280,000 for investment property. On his owner occupied property he will be able to borrow up to $800,000 as the Bank will allow maximum borrowings of up to 80% on the owner occupied property which is subject to servicing criteria, bank’s terms and conditions and LVR restrictions which are subject to change from time to time.
His existing borrowings are only $350,000 so he can potentially use $450,000 from his existing equity to purchase this new property ($800,000 -$350,000 = $450,000)
His potential new lending will be $350,000 + $700,000 = $1,050,000
Bank will consider the security of $1,000,000 +$700,000 =$1,700,000
LVR: 61% (within RBNZ rules)
In this Case Mr A is climbing his first step of property ladder. He could only achieve this GOAL as he did his Annual Home Loan Review. Have you done yours???? If not call us now to book an appointment to do a free Home Loan Review