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How To Buy Investment Property With Equity?

 

When it comes to real estate, one of the strategies many savvy investors use is buying investment property with equity. In this context, equity refers to the portion of your property's value that you own outright, beyond what you owe on the mortgage. Leveraging this equity can allow you to expand your real estate portfolio and increase your potential for long-term financial gain. Through this article, we'll provide a comprehensive guide on how to buy an investment property using equity.

 

Understanding Equity

 

Before diving into the process, it's crucial to understand what equity is and how it works. Equity is the difference between the current market value of your property and the remaining balance on your mortgage. 

For example, if your property is worth $300 000 and you have a mortgage balance of $200 000, your equity in the property is $100 000.

Equity grows over time through a combination of factors, including property appreciation and paying down your mortgage principal. 

 

Steps To Buying Investment Property With Equity

 

Evaluate Your Current Equity

Begin by determining how much equity you have in your existing property. You can do this by getting a professional appraisal or by researching recent property sales in your area to estimate your property's current market value. Then, subtract your outstanding mortgage balance to calculate your equity.

Check Your Credit Score

Your credit score plays a significant role in your ability to secure financing for a new investment property. Lenders will assess your creditworthiness before approving a loan. It's essential to review your credit report, address any issues and maintain a good credit score.

Set Your Investment Goals

Define your investment objectives and criteria for the new property. Are you looking for a rental property or a long-term investment? Knowing your goals will help you narrow down your property search.

Research Potential Properties

Once you have a clear goal, start searching for investment properties that align with your objectives. You can use real estate websites, work with a real estate agent or explore auctions and various deals. Be thorough in your research and consider factors like location, property condition and potential rental income.

Calculate The Loan-To-Value (LTV) Ratio

Lenders typically have specific LTV ratio requirements for investment properties. The LTV ratio is the loan amount compared to the property's appraised value. To calculate this ratio, divide the desired loan amount by the property's appraised value.

 

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Perform Due Diligence

Before finalising the purchase, conduct a thorough due diligence process on the new property. This includes property inspections, title searches and a financial analysis to ensure it meets your investment criteria.

Make An Offer

Once you're satisfied with your due diligence and secured your finances, make an offer on the investment property. Negotiate terms that align with your investment goals and budget. Be prepared for counteroffers and the possibility of competing offers from other investors.

Close The Deal

Work closely with your real estate agent and lender to complete the purchase process. This includes finalising the financing, signing the necessary paperwork and transferring ownership of the property.

Manage Your Investment

After acquiring the property, manage it according to your investment strategy. If it's a rental property, screen tenants, maintain the property and collect rent. If it's a long-term investment, carry out the necessary improvements and market the property for sale.

Monitor Your Equity

As you manage your investment property, continue to monitor your equity in all your properties. As property values appreciate and you pay down the mortgage on the new property, your equity will grow. This increased equity can be used for future investments or other financial goals.

 

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Buying investment property with equity can be a great wealth-building strategy when executed carefully and strategically. By leveraging your equity, you can expand your real estate portfolio and potentially increase your financial stability. 

Remember to conduct thorough research, speak with property experts, secure favourable financing and carefully manage your investments to successfully achieve your real estate investment goals.

 

Buying off the plan property can be a daunting process, but there’s an easier way. iBuyNew is your all in one solution that supports you at every stage, from search to settlement. 

We take the pressure off you by doing the research, shortlisting the best properties that suit your needs, connect you to excellent brokers and conveyancers and keep you updated throughout the construction process, all the way until you get your keys. Book a FREE discovery call today or call 1300 123 463.

Published on 15th of September 2023 by Davina Deluao
Davina Deluao
Davina Deluao

Davina graduated from Swinburne University in 2018 with a Bachelor of Arts, majoring in Journalism. Through travelling and studying abroad in NYC and LA, her interests in property and design grew and became a strong pursuit. Davina has been writing for iBuildNew Group since 2019.

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