If you are considering investing in real estate, one of the first questions that probably comes to mind is: How much deposit do I need? In New Zealand, banks charge 30% for an investment property due to Reserve Bank rules. There are some exceptions, however, such as new construction, which have more flexible requirements. Additionally, if you explore non-bank lenders, you may discover options for securing a property with a smaller deposit.
Is cash the only option for a deposit?
The good news is that your deposit doesn’t always have to be in cash. Many real estate investors use their equity in existing property to finance their next investment. But what exactly is equity and how can you use it to your advantage?
What is fairness?
Equity is the difference between the current market value of your property and the remaining balance on your mortgage. This is the part of the property that actually belongs to you. For example, if your home is valued at $1,000,000 and your mortgage balance is $500,000, you have $500,000 in equity.
For owner-occupied homes, banks typically lend up to 80% of the property’s value, or $800,000 in this case. This means that your usable equity is $300,000, which could be used for an investment property or other financial goals.
Why should you care about fairness?
- Investing in your future: As you pay off your existing loan, your equity grows over time, increasing your wealth without you even realizing it. If your home expands during this time, it may expand even faster.
- Unlock Cash Flow: Need to improve your home, finance your child’s education or take a dream vacation? Equity can give you access to additional loan options for these important expenses.
- Make smart moves in the market: Knowledge is power! Working with The Mortgage Supply Co to understand your stock position gives you the power to make informed decisions when buying, selling or investing, especially in a changing market.
How to use equity to invest?
If you’re considering using your equity to purchase an investment property, the process typically involves refinancing your existing home loan to free up some of the available equity. This can then be used as a deposit for your new property. Keep in mind that the amount you can borrow will depend on the bank’s lending criteria and the current market value of your property.
Need help understanding your equity?
If you’re not sure how much equity you could leverage or how to use it to finance your next investment property, we’re here to help!
At The Mortgage Supply Co, we specialize in guiding clients through the process of valuing their assets and creating wealth through smart real estate investments.
Contact us today to explore your options and start making the most of your property’s potential!
