The Power of Equity: Building Your Property Portfolio Without a Deposit
Release Date: 10/10/2024
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info_outlineWelcome back to another episode of Talk Property To Me! I'm your host, Brad East, and alongside my co-host Aaron Downie, we dive deep into the concept of equity and its pivotal role in property investment.
In this episode, we tackle one of the most frequently asked questions I encounter as a mortgage broker: "How can I purchase a property without a deposit if I'm already a homeowner?" We clarify that the answer largely depends on the equity you have in your current home. For those unfamiliar, equity is the difference between the market value of your property and the amount you owe on your mortgage. However, not all equity is usable, and we explain the distinction between total equity and usable equity.
Using a practical example, we discuss a hypothetical couple, John and Lisa, who own a property valued at $1.2 million with a mortgage of $500,000. This scenario reveals that they have $700,000 in equity, but due to lender restrictions, they can only access $460,000 as usable equity. We emphasize that pulling equity from your home is not "free money"—it’s essentially borrowing against your asset, and it comes with its own set of responsibilities.
We then explore the potential outcomes of John and Lisa's choices over a 25-year period. They can either do nothing and let their property appreciate, or they can leverage their equity to invest in additional properties. We calculate the potential growth of their investments, assuming a conservative 7% annual growth rate, and illustrate how their portfolio could grow significantly over time.
The discussion also touches on the importance of understanding the tax implications of property investment. We clarify that while capital gains tax is a consideration, the goal should be to generate income and wealth, not to avoid taxes. We encourage listeners to think about property investment as a means to increase their financial standing rather than merely a tax strategy.
Throughout the episode, we also address common misconceptions about equity, the importance of leveraging it wisely, and the potential for building a robust property portfolio. We highlight the benefits of investing in quality properties and the long-term advantages of starting early in the property market.
As we wrap up, we remind our listeners that the key to successful property investment lies in understanding equity, making informed decisions, and being patient as your investments grow over time.
Join us for this insightful discussion, and don’t forget to subscribe for more episodes where we break down complex property concepts into digestible insights!
- 00:00:00 - Introduction to Equity in Property Investment
- 00:00:11 - Understanding Equity and Usable Equity
- 00:01:08 - Calculating Usable Equity Example
- 00:02:54 - Releasing Equity: Options and Misconceptions
- 00:03:45 - John and Lisa's Investment Scenario
- 00:04:49 - Comparing Investment Strategies Over 25 Years
- 00:05:51 - Potential Growth of Investment Properties
- 00:08:01 - Total Value After 25 Years: A Summary
- 00:09:31 - Tax Implications of Property Investment
- 00:12:13 - The Importance of Income Generation
- 00:13:28 - Managing Debt: Good vs. Bad Debt
- 00:15:18 - Investment Property Loan Structures
- 00:18:01 - Equity Release Strategies Over Time
- 00:19:22 - Property Management: Quantity vs. Quality
- 00:20:53 - Conclusion: The Long-Term Benefits of Property Investment
ABOUT THE HOSTS
BRAD EAST
Brad East is the Managing Director of Wisebuy Home Loans. Brad is an award-winning mortgage broker and has helped thousands of clients gain finance to purchase properties. Wisebuy Home Loans is the go-to mortgage brokerage for clients wanting out-of-the-box applications approved.
Website → https://wisebuygroup.com.au
LinkedIn → https://www.linkedin.com/in/newcastlemortgagebroker/
Instagram → https://www.instagram.com/bradeast_mortgagebroker/
Facebook → https://www.facebook.com/bradeastofficial
AARON DOWNIE
Joining the podcast in 2024, Aaron Downie is a seasoned property investor and director of Mackenzie Buyers Agency. Aaron’s deep understanding of the property market and investment strategies provides listeners with invaluable insights.
Website: https://www.mackenziepropertygroup.com.au/
Linkedin: https://www.linkedin.com/in/aaron-downie-1b2749134/