The power is in your equity!
When you buy your own property, whether it's for living or just for real estate investing, you actually unlock a handy tool through making regular payments on your mortgage. This tool is called equity – and it's one thing that can help you grow your wealth for your future.
What is equity?
Equity is the difference in the amount your property is worth and how much you owe on it. This means that if your home is rising in value and you're paying down your loan, you'll build up more equity.
Obtaining a mortgage means you're committed to making payments to it. You might think that you're simply just paying back someone you owe, but in reality, you're actually stowing away this money for a later date.
Should you build up enough equity, you could use it to your advantage.
For instance, picture you had a house worth $750,000. If you've made enough payments to your mortgage and brought the overall home loan down to $500,000, you'll have $250,000 in equity. This means you could access $250,000 to go towards funding a variety of things. But keep in mind that your lender might not allow you to access the full amount of your equity as a security measurement.
What can I use equity for?
Through a mortgage refinance, you can actually access your equity to cover many types of expenses. This funding could be released to you in a lump sum or line of credit.
While many people might take this finance and go down the road of DIY renovations to improve the home they're living in, other financially savvy Australians take another route: Real estate investing.
Instead of using equity to spend on things like holidays, luxuries or other expenses, people are increasingly turning to property in order to set themselves up financially. It might be to prepare for retirement, give themselves another income or any other goal they've outlined themselves.
Using equity for a rental property
Accessing equity is easy, but finding an appropriate outlet for investment can be the harder option. Of course, if you're already a homeowner, then property naturally just makes sense!
You've likely already got the lingo down and you know what to look for in a home, so it's a simple transition from home owner to property investor.
One of the most convenient things about buying a brand new Queensland investment property with your equity is that you only need to cover the deposit when you sign the contract of sale.
This means accessing your equity as a lump sum to pay for the deposit at the time you sign the contract. When you buy off the plan properties, the remainder of the balance is only payable once the dwelling is completed and has reached settlement. This could give you many more months – or even years – to pay off your existing home loan to go towards your investment.