Using your home to build wealth
Using Your Home to Build Wealth
Using your property’s equity can be a great way to purchase a rental property. Property investment can provide income and capital growth and are great investments.
Investment properties can also provide tax advantages with depreciation and negative gearing. You should talk to your accountant about how this works. If you have substantial equity with your property, you should be look into some sort of investment immediately.
You may use this equity for a number of reasons like purchasing a car or for renovating your property. You may also build an investment portfolio to improve your lifestyle. However, you must only use the value that is within your means. To use your home to build wealth, you must choose your property wisely. There is a golden rule in real estate which says that you must buy low and sell high. Because of which, you must choose a property that is in an area of strong capital growth. Find the best street in this area and stay in this property for at least eight years. You must not overcapitalize on renovations as well.
Next, you must manage your debt like your assets. The home loan is possibly your biggest debt and so it must be managed wisely. You must take time to monitor bank fees and rates and never hesitate to refinance through another lender if it will save you more money in the long run. A one percent interest saving is equal to a one percent investment return increase. Then, you must learn to use interest rates to your advantage. Lower interest rates mean lower repayments. While you have low interest rates, you must take advantage of it by paying the principal amount of the loan more. You may also switch to a fixed home loan if there is an imminent interest rate hike but make sure that the fixed loan will be as long as your planned stay in that property.
You must also use the equity to build wealth. Though you have thousands of dollars in equity, you must use it in making sound investments. Redrawing the mortgage lets you use the equity in other investments. As long as you have at least 20 percent of the property’s equity, you can use this redraw facility. You may use this redraw to pay interest rates at low levels. And finally, treat your home more than just an investment. Investing in a residential property will give more returns than a cash management account but it offers less than property trusts and shares. Also, repairs and renovation jobs may cost money initially but they can add to the equity value of the property in the long run.
