Building wealth through property investment
Owning property is an excellent way to build wealth. Historically, property has been a less volatile investment with realestate values invariably tracking upwards over time. What’s more, you have the added benefit of being able to “leverage” your existing real estate investment to buy an investment property using borrowed money and grow your property portfolio even further.
Using equity to grow your investment portfolio
How much equity do you have in your home or investment property? Enough to fund your next property purchase and grow your investment portfolio?
If you’ve owned your property for some time and provided you have the means to service a mortgage, you may be able to access the equity in your property to fund the purchase of your next property. Equity is the difference between your property’s value and the amount you still owe on your mortgage. It’s essentially the bit you “own” of the property and it can be used as a deposit to buy another property.
If you’re buying a residential investment property or you’re using a residential investment property you already own as security for a new loan, you’ll generally need at least a 30 per cent deposit. Instead of having to save up the cash for the deposit though, you could use the equity in your existing property to purchase another property.
Calculating the equity in your property
To calculate how much equity you have, you’ll need to know the market value of your property. You can use the valuation on QV or get a registered valuation of the property to determine its market value. You’ll also need to know how much you still owe on any lending secured by the property, which you can obtain from your lender.
Lenders will determine how much you are able to borrow by looking at a combination of your equity and income. Different lenders will have different lending policies and the combination of equity and income may vary from lender to lender.
Your potential rental income from the investment property you’re planning to buy will be included in the lender’s servicing calculations when determining your borrowing capacity. Contact a Harcourts’ Property Manager to arrange a rental appraisal to help you determine the likely rental income from the property.
You’re required to have at least 20 per cent of equity in your existing property after new lending is taken out if you’re using the equity in your family home, or 30 per cent equity if using your existing investment property. That means you could borrow up to 80 per cent of the value of your family home and 70 per cent on any investment properties you own, based on current loan to value restrictions.
Source: Harcourts New Zealand