For those that don’t know, equity is the current market value of your home and rental property portfolio less any debt.
For example if you own a property with a current market value of $700,000 and have no debt against it then your equity is $700,000.
If you have a property with a current market value of $700,000 and a mortgage of $350,000 and then you have equity of $350,000.
1.Pay down debt
2.Increase the value to your property
3.Wait for the property value to increase over time
So now that you know what equity is, you might be asking how do you convert that into cash, release your equity.
The immediate answer is unless you have a sound reason then don’t!! You don’t need to prove to anyone how much “money” you have.
Nonetheless, you could turn your equity into cash by either selling your property or by refinancing your property (release equity).
To get the ball rolling fill out an application form with your lender.
If you don’t need the money right now but will need it in the future such as for a new purchase I recommend a line of credit.
This is effectively an overdraft facility and you will only pay interest on the amount you use.
For example, if you arrange a line of credit for $100,000 and you renovate a property for $20,000, you will only pay interest on $20,000, not $100,000.
The cool thing is you only pay interest at your floating mortgage rate.
Top Tip: If you have credit card debt say $10,000 at 20% interest rate use your line of credit and pay that debt off – reducing your interest cost by say 14% meaning you can pay down that bad debt down quicker. This strategy only works if you are good with money. Never use your rental property as an ATM and beware of racking up debt on credit cards.
So now that you have a line of credit, you can draw on it whenever you like and use it for.
1.You could pay a deposit on your next rental property
2.You could also use it for home renovations
3.A new car
4.Even a holiday
But remember use your money wisely and get taxation advice on interest charges you can and can’t claim.
Some of you might say this is all well in good but I don’t have a property to release any equity or you have now equity in your current property.
1.Talk to your parents about releasing some equity from their home for you to purchase an investment property
2.Find a friend, who has equity in home or rental property, to go into partnership with you
3.Finding a business partner to provide equity for the deal you have found
You now know how to release equity from your property by using a revolving credit facility.
The next step is to calculate your equity and then talk to your bank about that next purchase!
Here are all the banks current lending rates
P.S. Wealth Ladder is not a financial advisor or financial institution we recommend seeking independent financial advice.
I have been a property investor for over 13 years and have created a multi-million dollar portfolio including residential and commercial. I could go on about this but I’m not here to impress you but to impress upon you that YOU TOO can create wealth through property whether that be $100K or $5 million. I’ve been through the boom – bust – boom so I know what it takes to stay in the market. I live locally in Otahuhu with my wife and new baby boy. I love to help and teach people about buying well and for long term. We can all make a quick buck but the real strategy is creating long term wealth.
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