Are you curious about how much money you can borrow for your next property purchase? While consulting a mortgage broker is the best approach, we can provide a quick rule of thumb to help you understand the process. In this blog post, we’ll explore how to leverage equity in your personal home to kickstart your property investment journey.
Understanding Your Home’s Equity
Let’s say you own a home valued at around $900,000. If this is your owner-occupied residence, you can typically borrow up to 80% of its value. Here’s how the calculation works:
- Calculate 80% of your home’s value: $900,000 x 0.8 = $720,000
- Subtract your existing mortgage: $720,000 – $550,000 = $170,000
This $170,000 represents your usable equity. If you’re considering purchasing an investment property, you will need a deposit of 35% of the purchase price. Therefore, with your available equity:
- Maximum purchase price you can afford: $170,000 ÷ 0.35 = $480,000
Using Leverage to Invest in Property
When discussing property investment with family or friends, you can share this simple equation. For example, if their home is worth $900,000 and they have a mortgage of $550,000, they can potentially invest in a property worth up to $480,000 using their existing equity.
Many people are unaware of how to effectively use leverage, which is a crucial factor that enables property investors to acquire multiple properties over time. Instead of paying cash for these investments, they leverage the equity built in their homes. This strategy is particularly effective, as property values tend to appreciate every five to ten years.
Next Steps: Consult a Mortgage Broker
Once you’ve grasped this rule of thumb, the best course of action is to consult a mortgage broker. They can provide tailored advice and help you navigate the complexities of property investment financing.
Key Takeaways
- Understand your home’s equity and how to calculate it.
- Leverage equity to invest in additional properties.
- Consult a mortgage broker for personalised advice.
Conclusion
Leveraging equity in your personal home can be a powerful tool for property investment. By understanding how to calculate your usable equity and the potential investment opportunities it presents, you can take the first steps towards building your property portfolio. Don’t hesitate to reach out to a mortgage broker to explore your options further!
