Turn Equity into Investment Capital: Financing Your Next Property

After you purchase your first property, you may wonder what’s next.

... When can you buy more properties?

... Where do you get the money?

There are a few ways that you can find the money to buy your next property. 

But first, you need to find out how much equity you have.

Equity = Property’s overall value – Debt remaining on the mortgage

So, if you have a $500,000 property with $300,000 left on the mortgage, your equity is $200,000.

Accessing the equity through your lender may be another matter, though. 

They may value your property differently.

Capital Growth

Capital growth has a positive effect on the equity you have available to you. Increases in the property’s value often occur naturally, especially if you’ve bought a high-performance property.

You can leverage this growth to your advantage.

Paying off your mortgage may gradually increase the equity available in your home. But negative growth can drastically knock down equity as well.

Refinancing

It may also be possible to use your equity as collateral to secure more lending. 

If your equity has grown, you can refinance your mortgage at the increased value to get money back, which you can use to pay off debt or do as you wish. 

Cross Collateralisation

In addition, you can use equity from an existing property to secure loans for both properties. This is a high-risk strategy because you’re agreeing to tie both properties to the debt. However, it is a route that some people choose to expand their portfolios in a hurry.

You can mitigate this risk if you follow the holy trinity of real estate investing strategy.

This involves buying a high yield and high growth with potential for value adds.

Using this method, your positive cash flow property is set up to yield more serviceable income for future investments, plus you have the ability to force additional growth and cashflow into the property at a later date. 

Having a positive cash flow property increases your serviceable income. 

That means that you’re able to borrow more money for future investment purchases.

Ensuring you buy the right asset to build your equity base can be tricky.

But Dashdot can help.

We invite you to take our 15-second application to see if we’re a good fit.

Together, we can help you use your equity to build towards your future.

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