The answer is equity. It’s a hidden source of wealth that grows inside your property purchases over time. Equity is one of the biggest financial benefits of home ownership, a benefit that could allow you to turn your first home into a money tree that helps you finance property investment activities and build wealth for your future.

What is equity exactly?
Your equity is the difference between what your home is worth and what you owe on it. For example, if your property is worth $500,000 and you owe $400,000 then your equity is $100,000.
In order to calculate your equity position properly, you will need to establish the current market value of your home. You can do an estimate yourself by comparing your home to the price of similar homes that have sold in the surrounding area recently. If you would like a more accurate assessment of your home equity, you will need to obtain the services of a professional valuation expert.

How do you access your equity?
Once the equity in your home has increased, it may be possible to access it. Accessing your equity requires making an arrangement with a lender. There are several different ways you can go about accessing your equity. The options that are available to you will depend on your personal financial circumstances and goals, so you should talk with a professional mortgage broker about which method is right for you.

The two most popular options to access equity are to refinance your existing mortgage to extract a lump sum, or to establish a line of credit against the equity in your home. However, it should be noted that a lender will seldom allow you to borrow against all of the equity in your home, particularly if you still have a mortgage. They usually prefer to keep back at least 20% of the equity in your first home as security.

How can you grow your equity faster?
A popular strategy to grow equity quickly is to add value to your property. This can be achieved by renovating or expanding your home. You can often create quite large equity gains with a relatively small capital outlay and the equity increase occurs as soon as you have completed the project. Improving your property also tends to help it to continue to go up in value more readily over time – out dated properties, particularly run down properties, tend to experience less value growth because prospective buyers view them as fix-me-uppers and only want to pay a bargain price.

If your property is on a large block of land, you may even like to consider subdivision as a means of accessing the equity in your home. The subdivided block will acquire a value of its own, which you can borrow against to build. Or you can simply sell the block and access the funds.

What is the equity investment strategy?
When investing in property, time is your friend. Over time, the equity grows in your first property, which you can then use as a deposit to purchase a second property. This will mean that you now have two properties growing in value over time, which has the effect of growing your total equity position twice as fast. After a little more time passes, you can access more equity from the first two properties to invest in a third property, and so on.

Whilst you continue paying the mortgage on your first property yourself, your tenants pay the mortgages on your second property and any further properties you may purchase after that. Both the tenant’s financial contributions and home value growth in the marketplace continue to increase your total equity position. The more properties you own, the more quickly your total equity grows.

Are there any risks?
There are always risks associated with any kind of investment strategy. The danger is that you will borrow too much money and when interest rates go up, your tenant’s rental contributions will not cover your mortgage repayments and you may not be able to cover the difference from your own pocket. If a decline in property prices was to occur at the same time as an interest rate rise, you may find yourself in the position of having to sell off your properties at a considerable loss.

The way to mitigate these risks is to invest conservatively and always get the advice of a professional mortgage broker to help you determine how much you should borrow. They will help you take into consideration what could happen in the worst case scenario and help to make sure you don’t get caught out.

For more information about using the equity in your home to invest, please call us today. We’ll be happy to help you formulate an appropriate strategy that’s right for your personal financial situation and goals and help you to get started by helping you access your equity and by getting you pre-approval on an investment loan.

A good buyer’s agent is the property investor’s secret weapon. They provide professional guidance on every aspect of your property investment journey, with the objective of saving you time, money and many sleepless nights. A buyer’s agent can help you take a more professional, balanced approach to your property investment activities, removing the emotional aspects of the process and saving you from the natural human tendency to make unwise, impulsive decisions under pressure.

What does a buyer’s agent do?
Buyer’s agents specialise in representing a buyer’s interests during a property purchase. Whilst they are most commonly used by property investors, buyer’s agents are also frequently used by families searching for exactly the right home, and people moving interstate or overseas, making the process much easier by doing all the leg-work and narrowing down the options.

Buyer’s agents usually offer differing levels of service, depending on your requirements. The full service covers every aspect of the property investment journey including:

• Formulating an investment strategy that maximises your funds
• Searching for suitable properties to fit your buying strategy
• Researching every aspect of a property to ensure profitability
• Arranging inspections with vendors and real estate agents
• Negotiating a price and terms of sale
• Bidding at auctions on your behalf
• Co-ordinating your professional team – solicitors, mortgage brokers etc.
• Ongoing service to help you establish a complete portfolio.

Getting the property research and selection process right is arguably the most important part of your property investment journey. It certainly takes the most amount of time and getting the right information requires a certain amount of know-how too. A professional buyer’s agent knows which questions to ask and where to look for the answers. They can often access information from developers, councils and other relevant bodies that is not readily available to the ordinary consumer.

However, you don’t necessarily need to engage the full services of a buyer’s agent. You can also engage a buyer’s agent just to do research for you, to negotiate a price for you, or to bid for you at an auction if you would rather not do it yourself. This can be a good idea if you are nervous, inexperienced, you can’t attend the auction yourself, or you feel you may get carried away by the auction process and pay too much.

How much does a buyer’s agent cost?
There are many buyer’s agents and the cost will vary according to the agent you choose, your location and your requirements. Qualified, professional buyer’s agents generally charge between 1.5  – 3% + GST of the purchase price of the property for their full services, however this can often be negotiated in favour of a flat fee and savings may be obtained if you are planning on purchasing multiple properties.

When providing a research service only, a negotiating service only, or a bidding service only, your buyer’s agent will usually charge a fee for their time. Again this will vary according to the agent, the location and your requirements. You can generally expect these services to cost around $1,000 + GST depending on how much of their time you require.

If you are purchasing a property for investment purposes, the cost of a buyer’s agent is generally tax deductible as are most of the professional services you will require as part of the process.

How do you find a good buyer’s agent?
A good way to locate a great buyer’s agent is by word of mouth – there’s nothing like a recommendation from a friend, colleague or trusted business advisor (like your mortgage broker) to make you feel confident about someone’s credentials. However, you can also find some reputable buyer’s agents through the Real Estate Buyers Agents Association of Australia (REBAA) website.

Sometimes, outsourcing is the sensible option
Engaging a buyer’s agent can save you hours of time and loads of stress. If you’re new to property investment, then a buyer’s agent can also be invaluable in helping you to avoid costly mistakes. When you do find a property you want to buy, all the hard work in locating it can easily be lost in the final hurdle – the purchasing process. Having an expert on your side to negotiate the price you need, or to bid for you at the auction, can reduce the risks and make all the difference. Using a buyer’s agent is one case where outsourcing can take a lot of the frustration out of the process!

For more information, or to get your property investment finance in place, give us a call. We’ll be happy to help.

At its August meeting, the Reserve Bank of Australia (RBA) decided to cut the official cash rate by 25 basis points to just 1.50 per cent. This follows a rate cut in May this year, bringing the official cash rate to its lowest point ever on record!  The RBA has indicated that it’s now waiting for more information regarding global currency market activity before it will decide if further cuts to the cash rate will be necessary in 2016.

This month’s move was prompted by low inflation figures for the June quarter, which indicated a weakening trend, well under the RBA’s target range of 2 per cent.  The Australian dollar also remains stubbornly high compared to other currencies, which tends to have a dampening effect on the economy.

Property market activity has cooled during winter, which is traditionally the case for this time of year. For the week ending July 31, Victoria’s auction market was the strongest, with 754 scheduled auctions and a clearance rate of 75 per cent. NSW held 509 auctions with a clearance rate of 78 per cent. Queensland only scheduled 156 auctions and the clearance rate was quite low at just 49 per cent. South Australia had 107 auctions and a clearance rate of 69 per cent. Western Australia scheduled 34 auctions and achieved a clearance rate of only 37 per cent. Northern Territory had only 8 auctions and a clearance rate of just 25 per cent. ACT held 43 auctions, with a clearance rate of 74 per cent and whilst Tasmania held 7 auctions, none of the properties registered as sold.

With the overall weakening of property sales during winter, home value increases have also slowed. The biggest increase for the month was in Adelaide, where home values rose 1.42 per cent. Home values in Sydney increased by 1.25 per cent, in Hobart by 1.12 per cent and in Melbourne, 1.11 per cent. All other markets showed very marginal decreases in home values, except for Darwin where there was a significant drop of 6.18 per cent.

This month’s cash rate cut, combined with the decline in market activity for winter, has stimulated  lenders to offer some extremely competitive interest rates and great special offers. Smaller lenders have passed on the full rate cut, so if you’ve been waiting for the right time to refinance your home loan or fix your interest rate, then this could be it! We can also access great rates for first home buyers, next home buyers and property investors, so give us a call now to check out what we can do for you and find out how much money you could save.

What is ‘rentvesting’?

Everyone agrees that buying your first home is becoming increasingly difficult. The struggle to save up a deposit for your first property purchase is getting harder every year, with home values increasing by as much as 13% or more per year in major markets such as Melbourne and Sydney. The reality is that the longer you wait to buy a property, the more difficult it may become to save a deposit or borrow enough money to be able to afford to buy it.

For many people, being able to afford to buy a home in a location where they actually want to live is making the challenge more difficult still. With the most affordable homes often located in new suburbs or outer suburbs, finding a place you can afford to buy near to your place of work, family or required lifestyle amenities can be completely out of the question.

‘Rentvesting’ is a new buying strategy that’s recently emerged in response to these issues. It entails purchasing your first property as an investment rather than a place to live. Rentvestors typically purchase a property that meets their budget in a location they can afford, then rent a home in a location where they would prefer to live and work. It is frequently more affordable to rent a home in a popular location than it is to buy it, and this basic financial fundamental is what’s behind the rentvesting revolution.

Technically, you don’t actually have to be renting somewhere to be a ‘rentvestor’. The term also applies to many Gen Y first home buyers. This class of ‘rentvestor’ is typically living at home with mum and dad to reduce their living expenses whilst they save up a deposit for a property purchase. These savvy property buyers may continue to live at home with mum and dad even after they’ve purchased their first property, and perhaps even after they’ve purchased their second.

What are the benefits of ‘rentvesting’?

The primary benefit of the rentvesting strategy is that it allows you to get into the property market sooner. As every successful property investor will tell you, the sooner you get into the market, the sooner your property can start generating capital gains and the sooner you can start to build wealth.

The beauty of this strategy is that in a rising market, you may soon have equity you can use to purchase a second property that’s also in an affordable location. Again it probably won’t be a property you want to live in, but you’ll have two properties gaining equity as home values rise (potentially), two sets of tenants paying down your mortgages for you, and greater tax advantages as well.

Research is the key to a successful rentvesting strategy

Buying an investment property first means that you won’t have to compromise on the location when you make your purchase. This can also mean you can make investments that may return you the greatest capital gains. You can literally restrict your property searches to properties that meet your buying criteria of price, affordability and capital growth potential – a luxury that most owner-occupier first home buyers simply don’t have.

Careful and thorough research is the key to success with a rentvesting strategy. The property needs to deliver a very consistent income and at the same time, achieve steady capital growth. To succeed, you first need to identify a location that provides capital growth potential, then carefully consider the housing stock available within that location and choose one that will best meet your needs.

Call us to get started

As your professional mortgage broker, we’re here to help you assess your financial position and work out what you can afford to invest. We can also help you with up-to-the-minute property market data that could give you the edge when selecting the right property for your means.

For more information about rentvesting, or for an informal chat about your plans with no obligation, please give us a call today. We’ll be happy to help you start rentvesting if it’s the right solution for you.