Are you looking to expand your investment portfolio but find that most of your assets are tied up in your family home?
You might be able to leverage recent property market gains as equity towards purchasing an investment property. Let’s explore how this works.
Achieving Financial Goals Through Property Investment
Investing in rental properties has become an increasingly popular financial goal among Australians. According to MLC’s Financial Freedom report, 21% of Australians, and an even higher 27% of Gen Zs and 23% of Gen Ys, aim to own investment properties to build wealth. This trend is reflected in a significant rise in lending for investment properties, which has increased by over 30% in the past year, as reported by the Australian Bureau of Statistics.
The potential returns from property investment are clear. Over the last five years, rents have surged by 39.7%, rental vacancy rates have remained low at 1.3%, and home values have increased nationally by 13.5% since January 2023.
Unlocking Gains from Recent Property Price Increases
CoreLogic’s latest Pain and Gain report highlights that property profits have reached a 14-year high, with homes resold in the first quarter of 2024 yielding a median profit of $265,000. But how can you benefit from these gains without selling your home?
Consider this scenario: You purchased a house for $750,000 five years ago. Due to recent property price increases, the house is now valued at $1 million. If you originally took a $600,000 loan and have paid it down to $500,000, you could refinance your loan to $700,000 (70% of the current property value), thereby unlocking $200,000 as a potential deposit for an investment property.
Generally, banks allow you to borrow up to 80% of a property’s market value. Therefore, by refinancing to an $800,000 loan, you could unlock $300,000 in equity. This strategy enables you to engage in property investment—benefiting from rental income, capital gains, and potential tax advantages—without needing significant cash reserves. Furthermore, if your investment property appreciates, you can use the increased equity to invest in additional properties.
Exploring Alternative Property Investment Strategies
There are several pathways to becoming a property investor. You could:
- Use available funds for a cash deposit.
- Retain your current home as a rental after upgrading.
- Use your home’s equity for investments outside real estate, such as in shares or superannuation.
It is crucial to understand your options based on your financial situation and goals. If you’re interested in exploring these opportunities further, contact me today to learn how you can become a property investor.
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