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Unlocking the equity in your home
Equity – no it isn’t the latest long haired boy band that’s sending teenage hearts aflutter and Simon Cowell’s bank balance into the stratosphere. More excitingly, it’s a way to boost your own wealth by taking advantage of our local and ever-bullish property market here in Sydney. Louisa Sanghera, local finance expert explains how to unlock the equity in your home and build your wealth
This past year house and unit prices have risen 3% and 4% respectively, and despite the squeeze the higher prices are having on rental returns, the gross rental yield is still 2.7% for homes and 3.6% for units. And that’s without any capital gains.
Sure there are oversupply issues that are casting a shadow on short-term gains from property investment in Brisbane, Perth and even Melbourne, but the Sydney market isn’t affected.
Recent figures show that in 2016, Sydney’s population hit 5 million, and if that trend continue then Sydney (as well as Melbourne) look set to top the 8 million mark by 2050 … and all those extra people have to live somewhere…maybe in YOUR investment property!
Of course, there are risks involved with any investment, and taking out extra finance on your family home comes with added emotions and concerns. But by carefully researching your options, you can safely use your biggest asset to help secure your family’s long-term future.
So what is equity?
Equity is the difference between what your home is worth and your outstanding mortgage. If your house is worth $1.5 million and your mortgage is $500,000, your equity is $1 million. Given that house prices have doubled in Sydney since the turmoil of the Global Financial Crisis, any Sydney homeowner who bought over eight years ago will be sitting on a considerable amount of untapped equity.
What do banks want to know
While it’s true that some banks have tightened their lending to investors, your broker will still be able to help you maximise the potential of the equity in your home by arranging finance. Your eligibility boils down to two factors: security and serviceability.
Security: in the event of the worst-case scenario of a loan default, would the sale of the properties involved cover the outstanding debt?
Serviceability: can you manage the increased mortgage payments? When working out the amount that you can afford to borrow, lenders will take into consideration factors such as rental property expenses, and negative-gearing tax breaks. Talking of tax …
Let’s talk about tax
There are various tax implications involved with the purchase of investment properties, especially if you are redrawing on your current residential home loan. Unfortunately, there isn’t a simple one-rule-fits-all solution, so it’s essential you talk to a professional financial adviser who will be able to nail down the specifics before you even approach a bank.
Find a team of professionals you trust
Don’t rush into property investment without first building a strong team around you. Do your research – talk to experts such as real estate agents and buyer’s agents about upcoming areas; employ the services of an accountant or financial adviser to structure your finances; and work with a mortgage broker who understands your needs and can secure you the best loan. They will be able to guide you at every step of the process and talk you through the various fees and charges involved.
Put these steps in place and you can use the bricks and mortar of your current home as a secure foundation on which to build your wealth.
Louisa Sanghera is a Finance Broker for Residential Mortgages, Vehicle and Asset Finance, Commercial Lending and Budgeting and Cashflow Coaching with Zippy Finance.
She has gained more than 30 years in the Banking and Finance Industry, and since founding Zippy Finance has become a multi award nominated expert in the field of finance featuring regularly in industry press and speaking at finance and investment seminars across the country.
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