Did you know that if you already own your own home, you can use this to help fund investment into other properties in preparation for retirement?
Many people aren’t aware of this or don’t fully understand how it works. Essentially, you can withdraw equity from your home and put it towards your next investment. The best part of this? Home equity is generated while you sleep and on holidays!
I’ll explain further below – but first:
What is equity?
Home equity is the value of the homeowner’s interest in their home. Simply calculated, it’s the value of the home minus any mortgage or liabilities against the home.
How do you grow equity?
The below is a simple example of how equity is grown:
● Let’s say Mr & Mrs Smith purchase their family home for $500K, using $100K of savings and borrowing from the bank.
● After 10 years, their home value doubles and is now worth $1 million.
● Assuming they haven’t been reducing their loan (highly unlikely!) over this period, they have generated an extra $500K in equity (equivalent to $50K a year).
● This equates to $600K equity in total: $1,000,000(current value) – $400,000(home loan)
● The actual “usable equity” of a home is typically 80% of its current value. So, by refinancing their family home, Mr & Mrs Smith can increase their loan from $400K to $800K (80% of the property’s current value) and use the extra $400K to invest in property.
How do you use your home equity to create an Investment Property Management Account?
By using the home equity described in the example, Mr & Mrs Smith can start their Investment Property Management Account.
An Investment Property Management Account (otherwise known as a Master Facility), is a single bank account (separate to your home offset account) used to manage the payment of deposits, expenses and cashflows for your investment property portfolio.
In Mr & Mrs Smith’s example, they’re able to put $400K of their home equity into their Investment Property Management Account, to invest and build out their property portfolio.
SUMMARY
Did you know that if you already own your own home, you can use this to help purchase your next property and build wealth in preparation for retirement? Many people aren’t aware of this but it’s an astute way to fund your next investment; I’ll show you how it works with an easy-to-follow example.
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