When borrowing for any reason, you need to take your budget and cash flow into account, leaving a buffer for any unforeseen expenses or interest rate fluctuations. Once you’ve worked this out, it’s relatively simple. Your property’s value should rise and generate equity over the long term.
Using home equity to purchase your investment property
Equity is the difference between what you owe on a property and its market value. If your home is valued at $300,000 but you only owe $200,000, then you potentially have access to $100,000 by refinancing your loan. Using your home equity as a deposit is a fantastic way of securing funding for an investment property.
Learn more about home equity here.
Purchasing an investment property with your superannuation fund
It is possible to use your self-managed superannuation fund (SMSF) to purchase an investment property. Before you go ahead with this option, get in touch with an accountant or financial planner to discover:
- What you are permitted and not permitted to do with your SMSF
- The advantages of using your SMSF to buy an investment property
- The risks and downfalls of such an investment
- The appropriate trust structures to use
- Strategic tax planning and deductions
Buy, renovate and sell
Some investors build equity and make profits quickly by purchasing run-down properties to renovate and sell at a higher price.
To do this successfully, you must consider a range of factors, including agent fees, stamp duty and market trends. You will also have to increase the property’s value significantly to make any profit. This is due to capital gains tax, which is payable whenever you sell an asset that has risen in value since you purchased it.
If you want to take on the challenge of flipping a property, make sure to carry out a building and pest inspection before you purchase. These inspections identify any structural issues or pest damage to the building so that you can avoid buying a property that requires repairs beyond your financial capacity. A building and pest inspection report can also be used as a bargaining tool for price or contract negotiations, so you’ll get the best value for your money.