Is it time to access your home’s equity?
A lot of people forget that your first home purchase is really just another form of property investment. You might not be renting it out, but that doesn't mean value increases are simply passing you buy. If you made a careful buy in a high-growth area a few years ago and want to make your first investment purchase, it might be time to start looking at equity extraction.
The power of equity
When you bought your current home, you might not have had any interest in the investment market. But with values increasing all over the country and housing dominating both headlines and election promises, it may have struck you that it's about time you learned what it's all about.
One of the first terms you'll need to learn is 'equity'. In simple terms, this is the difference in the amount you owe on your home and the value of the home itself. Over the years, you'll have been earning equity simply by making your mortgage repayments, but you also garner it through general property value increases.
For example, if you bought a $500,000 in Brisbane last year with 20 per cent security, you immediately had $100,000 in equity because of that deposit. After the 5 per cent gains in Brisbane reported by CoreLogic RP Data over that time, the value will have increased on average to $525,000. Even if you hadn't been paying off your loan, you would now have $125,000 in equity.
Making it work
Simply by holding onto property, you earn equity.
Simply by holding onto property, you earn equity – and with a trick or two from us, you can pay off your debt much faster than you might think, increasing equity even faster. But why stop there? By expanding your holdings in property, you double down on those equity gains, and you can use your current assets to do so.
According to the Melbourne Institute's Housing, Income and Labour Dynamics in Australia survey (HILDA), the average equity across the nation was approximately $425,000 in 2014. Of course, high-value places like Sydney will have skewed that somewhat, so it might be lower for a home-owner in Queensland. However, there could still easily be hundreds of thousands of dollars currently sunk into your house that is simply sitting there.
We reckon it would be better put to use in creating wealth – don't you agree? With the right advice from the property mentors here at Think Money, you can use your equity as a jumping-off point into wealth creation through real estate. If you're interested in learning more about putting your money to work, make sure you get in touch with the team here today.