How to use equity to build a property portfolio

If you've owned your home for a few years, you likely have built up equity as property values have increased. But how do you use equity to build a property portfolio?

Before we answer this question, let's take a few steps back.

What is Equity?

Equity is the difference between the value of your property and the remaining balance on your mortgage.

For Example:

If your property is valued at $800,000 with a loan balance of $400,000, your equity amounts to $400,000.

Understanding the equity balance in your property

How Can You Access the Equity in Your Property?

Banks generally allow you to borrow up to 80% of your property's value. This is known as your useable equity.

For Example:

If your property is valued at $800,000, 80% of its value is $640,000. With a loan balance of $400,000, your useable equity would be $240,000.

Difference between equity and useable equity

Next, let's consider how to use equity to build a property portfolio

Once you’ve calculated your useable equity and confirmed you have enough to use as a deposit for your next investment property, the next step is to ensure you can service the additional debt.

This is because your new loan balance will include the additional equity. Meaning, you will increase your loan to 80% of the property value.

The useable equity ($240,000) will be used as the deposit for your next investment property.

You can then rinse and repeat over the coming years to continue building your property portfolio. However, at each step, it’s crucial to consult with your mortgage broker to evaluate your ability to service the increased loan balance.

For Example:

If your property is valued at $800,000, 80% of its value is $640,000. By accessing $240,000 of useable equity, your loan amount will increase from $400,000 to $640,000.

Difference between the current and new loan balance

---

 If you would like to know more about how we can help you build a property portfolio give us a call on 0423 344 286 or email us at hello@mindsetproperty.com.au, or simply connect with our Director Peter Theodorou.

Subscribe on our website for instant access to our latest blogs, designed to guide you in cultivating the right mindset for property buying and investment.