There are probably plenty of Kiwis who have considered buying investment property in New Zealand only to be discouraged by the idea of borrowing or saving thousands of dollars to fund the endeavour.
The prospect of taking out a big loan, especially if you already have one for your own home, can certainly feel overwhelming. However, it's the people who already have mortgages that have the best chance of obtaining a residential investment property without many out-of-pocket expenses.
Not, it's not magic; it's called equity.
Leveraging your equity
Equity is the difference between what your home is worth and how much money you still owe your mortgage lender for it.
Say your home cost $800,000. If you've paid off $400,000, that means you now have $400,000 in equity built up. However, instead of letting this valuable financial tool simply sit idle, you can access your equity by borrowing against it.
In this way, you're tapping into the wealth you've already built by taking out a mortgage and paying it off.
In short, instead of having to furiously save over a number of years or take on a brand new loan, you can simply reach into the piggy bank you've been filling up this whole time: your existing property!
How you access your equity is ultimately up to you.
For instance, people looking to make renovations on a property often find that setting up a home equity line of credit works best for them. In this way, they treat their equity as they would a credit card, using it when the need arises.
However, if you're looking to purchase a residential investment property, chances are you'll want a lump sum loan.
Working with experts and obtaining property investment advice can help you figure out if leveraging your equity makes sense for you.
Here's to your financial independence!
Authorised Financial Adviser / Investment Property Expert