Equity lying dormant in a property is like storing your cash under a mattress. It’s a waste. So what could you be doing about it?

Equity is the term given to the value that belongs to you in your property, after calculating the amount still owing to the bank.

Equity is very valuable. It allows you to do things with it, some of which lead to further gains like investing in another property, or others like simply spending like on a boat or on overseas holiday.

To explore this subject, let’s discuss how you can calculate how much equity you have, how much this enables you to borrow, and the positive use you could make of it.

Firstly, calculating how much equity you have in your home is fairly straightforward:

Step One – arrange for a bank valuation of your property

Step Two – from this figure, deduct the amount still owing on your mortgage

Step Three – the balance is your available equity.

Next you can calculate what amount this equity enables you to finance should you wish to buy an investment property.

For example, let’s assume your home is valued at $400,000, and you owe $300,000 on your mortgage. Your available equity is therefore $100,000.

A bank will normally allow you to borrow up to 80% of the value of an investment property.

Let’s assume that you have identified an investment property in a prime location, with a price of $350,000.

The fees and stamp duties would add about 7% to this, bringing the total investment to $374,500.

Given your available equity as above, you could do the following:

a) Borrow 80% of the purchase price from the bank i.e. $299,600

b) Use $74,900 of your available equity to fund the balance.

Hey presto! You become the proud owner of a second property. Did you have to save for the deposit? No! Did you have to take money out of savings or sell shares to get the deposit? No!

So where did it come from? How could you simply acquire another property so easily, where all you read about every day is how hard it is for people to save up to buy a property?

Unlocking your equity – that is the answer. It is the formula that tens of thousands of Australians have used so successfully to build a portfolio of properties and have the assets they need to have working for them in their retirement.

If the above example sounds simple, it’s because it is!

If you would like to find out more about how to unlock the equity in your family home and become an investor, please call McCarthy Group on 1300 850 318.