If you already own a home or an investment property, you may be sitting on one of the most powerful tools for growing your portfolio: equity. Many property owners do not realise how their existing property could help fund their next purchase.
What is equity?
Equity is the difference between what your property is worth and what you still owe on it. It grows as your property increases in value and as you pay down your loan.
What is usable equity?
Not all of your equity is available to borrow against. Lenders generally only let you access a portion of your property’s value, and the rest acts as a safety margin. The amount you can access, known as usable equity, depends on the property’s current valuation, your loan balance and the lender’s policy. Your borrowing capacity also needs to support any additional debt.
How equity can fund your next purchase
Instead of saving a new cash deposit from scratch, many investors use their usable equity as the deposit for their next property. This can help you move sooner and keep your savings as a buffer. It is one of the main ways investors grow from one property to several.
Things to consider before you use it
Using equity means taking on more debt, so it needs careful planning.
- Can you comfortably service the extra debt? Your repayments will increase, so your cash flow needs to support them.
- How will the loans be structured? The way loans are set up across properties affects flexibility, tax and risk. Structure is worth getting right from the start.
- What happens if values change? Property markets move in cycles. A sensible buffer protects you if things do not go to plan.
- Does the next purchase fit your strategy? Equity is a tool, not a reason to buy. The next property still needs to suit your goals.
Get a clear picture first
The first step is understanding how much usable equity you may have and whether using it makes sense for your situation. A proper assessment gives you a realistic starting point before you commit to anything.
Thinking about your next property? Call the Mirren team on 02 8814 5275 or book a free strategy session and we will help you understand your equity position and plan your next move.
This article is general information only and does not take into account your personal objectives, situation or needs. Please seek professional advice before making any investment or finance decisions.
