How to best leverage the equity in your property

The equity homeowners have in their property is likely the biggest untapped source of available capital for property investment. The real estate market in cities like Sydney, where prices rose nearly 16 per cent last year, is well and truly booming. Yet many homeowners who have benefitted from rising sale prices face the question of leveraging equity with deep trepidation.

Have idle equity? Here’s what to do.

With sound financial planning and astute market sense, the equity in your existing property can still be leveraged to build your portfolio and create wealth. The question is how to do it.

So far, so good, but what’s next?

Should you sell and reinvest, or borrow against the equity in an existing property? The fear of losing the family home or endangering an existing investment property is not crazy, but it may prompt an overly cautious approach that compromises the value of what you have already built.

Remember this. You may be able to refinance an existing mortgage, freeing up as much as 80 per cent of your equity. This sum can then be used for the deposit and costs of other investment properties. Although you end up with two mortgages, the net result may be greater equity in the properties as a whole. The numbers matter, and every situation is different, so you should seek the advice of an independent property investment specialist and a mortgage broker to ensure that you are making the smartest decision.

What you can do to prepare yourself

There are five important steps you should take before making a decision on your property investment:

  1. Educate yourself through books, podcasts and seminars. Make sure to get a variety of perspectives.
  2. Talk to people who have experience with leveraging equity. Nothing replaces news from the trenches.
  3. Seek the advice of a trusted property advisor. They will be to advise on how much equity you’re likely to have in your property and recommend a course of action which gets you the best return on your investment.
  4. Talk to a mortgage broker about how much you can borrow and how you can get the best deal on your loan.
  5. Make sure that you have a plan to get out of an investment if it does not work out. Although there is no need for unreasonable risk, all investments are inherently speculative. It may be best to structure each transaction separately so that one puts the other in as little risk as possible.

Using your existing assets to build wealth makes sense. As you consider your options for leveraging your equity in the hottest real estate market many investors can remember, make sure you get the advice you need from sources that you trust.