Are You Sitting on a Gold Mine?
Your primary residence could be your dream home as well as a building block in achieving financial wealth and independence. If you’ve been paying off the principal on your home mortgage and living in a high-growth area, chances are you’re sitting on a gold mine that can be used to further your dreams faster than you thought possible.
If you’ve been paying off your mortgage for a few years, you might have built equity in your home that could be used to fund an investment property. Before you start, always talk to a qualified expert in the area you’re looking to invest. They can help you to understand the potential risks and rewards, as well as informing you about the nature of the local market.
Valuation and Equity
If you’ve been making capital improvements on your home, you should also have been getting valuations done regularly. Valuations can confirm that you’re not over-capitalising and also help to determine the true equity you have amassed.
Speak to a few real estate agents and your bank to determine how much your property is valued at and the amount owing on your loan. The difference will give you and the lender a clear picture of the equity you have in your home and how much you can borrow.
Loans and Repayments
Say you have a property worth $750,000 and your equity is $250,000. The amount you can borrow has been determined at $100,000. Take some time to assess your ability to repay the increased debts before unlocking the equity. You may find that you’re only able to service $70,000. You’ll then need a 20% deposit as well as about $20,000 in fees, so the amount you’ll be able to spend on an investment property is $250,000.
You may be able to invest in a property with less than a 20% deposit, but lenders will require mortgage insurance of some kind. Speaking with both a property investment consultant and your bank will give you a clearer picture of your position and help you determine exactly what you’re capable of spending and servicing.
Whether you’re looking to invest in Brisbane, Sydney or the Gold Coast, look for the features close to a property that your tenants will consider desirable. An area’s demographics won’t always stay as they are today, so resist the temptation to focus on today and take a glimpse into the future.
Some things to consider include:
- Transport options – Are there trains, buses, ferries within walking distance from the property?
- Schools – Will families want to live in the area? Are there reputable schools and convenient transport options to access them? If your property is geared at a low-income market, you may be attracting tertiary students, in which case, are universities close by?
- Sport and recreation – Places like Sanctuary Cove and now Hope Island have attracted property investment because the facilities provided are unparalleled elsewhere, not only in Australia, but globally. Does your investment offer a highly desirable lifestyle for tenants?
- Commercial areas – Can people shop and work in the area? Whether the property is in a city or on the Gold Coast, residents want to be able to access services, work, child care facilities and medical centres without spending too much time driving.
Talk to the Experts
If you’re looking to invest, talk to a financial planner and property investment consultant with market expertise. The more people you talk to, the more you’ll learn about how to access wealth from the gold mine you’re living in.