The benefits of using equity to buy an investment property
Last updated on June 16th, 2023
The Advantages of Using Equity to Purchase Investment Property in Australia
Investing in real estate has long been recognized as a sound strategy for building wealth. In Australia, property ownership is highly valued, and many Australians aspire to enter the property market. When it comes to financing an investment property, one approach that offers numerous benefits is using equity. In this article, we explore the benefits of using equity to buy an investment property in the context of Australia.
Maximizing Borrowing Power:
One of the primary advantages of using equity is the potential to maximize your borrowing power. Harnessing the potential of equity presents a key advantage: the ability to optimize your borrowing capacity. Equity, denoting the variance between your property's market value and the outstanding mortgage balance, grows in tandem with the appreciation of property values. Through astute utilization of this equity, you unlock supplementary funds, amplifying your capacity to secure loans with terms that are notably advantageous.
Potential for Higher Loan-to-Value Ratio (LVR):
Lenders typically impose a maximum loan-to-value ratio (LVR) that determines the percentage of a property's value they are willing to lend. When using equity, you can potentially achieve a higher LVR, which means you can borrow a larger portion of the property's value. This can be particularly advantageous when property prices are on the rise, as your equity grows, giving you access to more substantial funds for investment purposes.
Access to More Favorable Interest Rates:
By utilizing equity, you may qualify for more competitive interest rates on your investment property loan. Lenders often offer preferential rates to borrowers who can demonstrate a lower loan-to-value ratio or have a proven track record of property ownership. Leveraging your existing property's equity can enhance your financial profile and increase your chances of securing a loan with more favorable terms, including lower interest rates, thereby reducing your borrowing costs.
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Tax Advantages:
Australia's tax system provides several advantages for property investors. By using equity to purchase an investment property, you can potentially unlock various tax benefits. For example, you may be eligible to claim tax deductions on mortgage interest payments, property management expenses, and depreciation allowances. These deductions can help offset your rental income and reduce your overall tax liability, making property investment even more financially attractive.
Diversification and Wealth Creation:
Investing in real estate allows for diversification of your investment portfolio, reducing risk through exposure to different asset classes. By using equity to buy an investment property, you can expand your property holdings without relying solely on your savings or having to sell your existing property. Diversification not only spreads risk but also increases the potential for long-term wealth creation as property values historically appreciate over time.
Leverage and Potential Capital Growth:
Leveraging equity allows you to take advantage of the potential capital growth in the property market. When using equity, you can secure additional funds to invest in a property that has the potential to appreciate in value. As property values rise, your equity in the investment property also grows, amplifying the potential returns on your investment.
Utilizing equity to purchase an investment property in Australia offers numerous benefits to savvy investors. It allows for increased borrowing power, potential for higher LVRs, access to favourable interest rates, and the ability to unlock tax advantages. Additionally, leveraging equity enables diversification, wealth creation through capital growth, and the opportunity to expand your property portfolio without depleting your savings. As always, it is crucial to seek professional advice and conduct thorough research to assess your individual circumstances before making any investment decisions.
Speak with a Mortgage broker today! about the benefits of using equity to buy an investment property.
