Equity shouldn't just be something you build up over time and leave alone. After all, what's the point of creating a wealth-generating tool if you're not going to use it? You wouldn't buy a sports car just to take the bus, would you?
You see, when you pay off your home loan, you grow your equity – that is, the difference between your home's value and how much money you owe on it. Besides representing how much of your home you actually own, equity also represents an incredibly valuable asset you can use for property investment purposes.
You can tap into the equity you've built up by using it as security with a financial institution and borrowing against it.
Think of it this way: If you fully own a home worth hundreds of thousands of dollars, you can borrow other people's money against that value and use it for a residential investment property in Auckland or other areas. Doing this can help your investment goals in a number of ways.
Freeing up funds
First and foremost, tapping into your home equity provides you with the funds you need to make your investment dream a reality. Equity is all well and good, but it's not the same as cold, hard cash.
And anyone who's ever bought a home before can attest to how difficult it can be coming up with a deposit all on their own. Accessing your equity streamlines the process and makes obtaining the money you need a breeze.
There are a few things you need to remember when using your home equity. First, you can't access all of it. Lenders will typically provide you with up to 80 per cent of your home's value, minus any debt you still owe against it.
Second, using your home as security means putting it on the line in case you don't pay back the money you borrow. Keep this in mind when formulating your investment plan and ensure you're in a position to stay financially stable.
After all, property investment is a long-term game, so expecting immediate returns to pay off your loans isn't a smart strategy.