SHOULD YOU WITHDRAW EQUITY EVEN IF YOU DON’T NEED IT?
If your investment property has performed well in capital growth, chances are you have a chunk of equity at your disposal. Or do you?
It is not always possible to withdraw equity and use it to buy your next deal. This is why it is important to use the right mortgage broker from the onset.
Even if you have done this, however, there is no guarantee that that equity will be yours to use when you need it most.
In 2015, APRA tightened lending for property investors, making it more difficult for countless investors to withdraw equity in order to expand their portfolios.
This is why Nathan chooses to withdraw equity into an offset account or line of credit as soon as it is available.
USING EQUITY AS A BUFFER
If you have earned equity but aren’t ready to purchase another property, you can still use it to your advantage. By putting it into an offset account, you are making sure it will be available if you need it. This means you have an emergency backup.
PROTECTING AGAINST CHANGES TO LENDING
Imagine you had five investment properties that each had $100,000 worth of equity available. That half a million could potentially be used to purchase and renovate a property that makes you an additional $100,000 upon the sale of each.
You may not be ready now – it may be a move that you make in a year or so, however, there is no way of knowing whether or not your lenders will allow you to access this much equity when the time comes.
Setting up your equity so that it is available and ready to be accessed when you are ready to use it will protect your plans against unforeseen lending restrictions…or life and income changes.
HAVE IT THERE BUT DON’T SPEND IT UNLESS THE DEAL IS RIGHT
If you decide to line up your equity so it is readily available, make sure you don’t touch it unless you are going to use it for your next well thought out purchase. The equity you earn through investing holds the potential for building wealth – so don’t throw it away. Most importantly, don’t ‘live off’ your equity.
It is also a bank loan. If you access your equity, you will need to pay it back with interest attached just like any other loan. It is important to show it due respect by not spending it impulsively on luxury items. However, as long as it remains in an offset account, the net interest to you will be zero.
SPEAK TO A FINANCE STRATEGIST BEFORE YOU MAKE YOUR MOVE
Before deciding what to do with your equity, it is imperative to speak with a finance strategist such as Zinger Finance first. They can help you identify the best moves that will benefit your strategy, and bring clarity to any questions you may have.
Make sure the mortgage broker you deal with has an established record of helping portfolio building property investors achieve their goals. And, make sure their advice makes sense to you – if it doesn’t, keep probing until you find the peace of mind and satisfaction that you are paying for.
Have lending restrictions or life changes prevented you from accessing your equity? Please share your experiences in the comments section below.