When it comes to investing in properties/real estate a key concept you need to understand is equity in your current property. Most successful investors understand what equity is and use it in their advantage.

So, what is equity?

An equity is a difference between current value of your home and how much you owe to a bank or lender. For example

James and Catherine purchased a property in Liverpool 5 years ago and they were looking at purchasing their next property and currently looking at their equity position, below is the breakdown

• Current house value      : $860,000
• Balance outstanding     : $400,000
• Equity                           : $460,000 (i.e., $860,000 – $400,000)

In this example, the great news is James and Catherine have equity of $460,000. They can borrow against this equity to fund their next property.

Useable Equity (what can be used to borrow)

Lenders typically lend 80% of the value of the loan, some do more than 80% and may incur extra cost for Lenders mortgage insurance. our example is based on 80% of the value.

In above example  

• Current house value     : $860,000
• 80% value                    : $688,000 (80% of $860,000)
• Balance outstanding     : $400,000
• Useable Equity             : $288,000 (i.e., $688,000 – $400,000)

James and Catherine have useable equity of $288,000 that can be used to assist with their purchase of the next property.

Even James and Catherine have useable equity of $288,000 it is not always given that the lenders will lend them sufficient to purchase next property. Other key factors to consider are their income, age, credit criteria and lenders credit guidelines.

If you would like discuss your current equity position and your strategy, please contact our broker Anup on 0415 900 264 or simply email anup@drawequity.com.au

Draw Equity