How Can You Build Your Passive Income-generating Portfolio Without Using a Single Dollar From Your Pocket?

Are you looking for a way to #purchase your next property without taking ages saving up for the down payment? 

Then the following question is, do you have a home you've owned for the last few years? Or even if you  just bought your #home in the past year or so? 

There's a good chance you already have enough equity to use as a deposit for your next purchase. 
Isn't that great!

Equity is one of the most powerful tools to build a solid #property portfolio. Equity is the value you have built up on your property over time but aren't tapping into to use it to your advantage.

As a property portfolio owner, I want to share how you can take advantage of this. As a simple example, I can share to clarify:

Your property valuation is $900,000, and you still owe $400,000. Your equity is $500,000. Keep in mind that as the property's market value fluctuates, so does the equity. It is crucial to note that even if you have equity, this doesn't mean you can automatically access it. Your lender will look at other factors, such as your age, income, current debt, your dependents, and the property's location. Best to approach a qualified mortgage broker for help.

Note that the total owing needs to conform to the property's LVR (Loan To Value) ratio. In this above example, assuming 80% LVR, available equity will be 80% of $900,000 minus $400,000 = $320,000.
From the above example, you can see that you are ultimately FREE to use the money you take out of your home equity for your investment. Your home equity can, however, be wisely spent to improve your financial situation.

Following are the possible options that you may consider:

Establish a line of credit

A line of credit is otherwise known as a home equity loan or home equity line of credit. This feature lets you borrow money with your existing equity. A line of credit gives you the freedom to access your funds anytime you need them. Hence, you can use it at your discretion. 

Credit lines charge interest only on the amount you borrow. Once it's paid off, you can reborrow up to the limit you set.

A deposit bond 

Equity can be used as a deposit bond or guarantee. You can do this if you're buying off-the-plan with a 12 to 24-month settlement. As it sits in a bank account awaiting payment, it generates interest.

Home Improvement

You can use your equity to renovate your current property if you don't have enough to purchase an investment property. You can potentially turn your home into an investment and begin your investment journey. Renovation projects require a lot of smaller building supply purchases that could be funded with a home equity credit line. 

Use as a deposit for your next property

You can use the equity in your property as a deposit against an investment loan. If you have enough equity, you can borrow up to 80% (or even up to 90% subject to Lenders Mortgage Insurance) of the property value without using your cash.

Successful investors expand their portfolios by buying more #investment properties using the equity they have built up from their existing properties. Existing equity allows you to buy at today's prices and benefit from price growth faster than if you had to wait and save for a deposit.

It will compound when you keep using this #strategy and add more properties to your portfolio. Every time the property market rises, your useable equity increases too. Unlike other assets, you don't have to sell the asset to tap into the profit. You can extract equity without paying any expensive transaction costs.

Questions To Ask Yourself Before Using Your Equity

• Before proceeding to use equity, consider the following questions first:

• By how much amount will your loan repayment rise?

• Will you need a longer loan term?

• Do you have a budget in place to accommodate the additional costs?

• Can you access your property equity through your current lender, or will you need to refinance?

• Are you prepared for the possibility of increasing interest rates?

• If you change lenders, are you prepared to pay break costs, application costs-- establishment, legal and valuation fees, stamp duty and possibly LMI?

Again, a qualified mortgage broker can guide you on that.

Your next steps will depend on how comfortable you are with taking risks, incurring new debts, and how far you are from your financial goals.

If you are considering #investing in another property, you should speak with a property strategist about your next steps. Read more on this topic here.

Before tapping into your home equity, consider the costs, benefits and disadvantages and how they align with your financial goals. Home equity can be a powerful tool for improving your financial stability if used wisely.