Category Archives: Financing

Three ways to build equity

Three ways to build equity

This article touches on three ways to build equity in your home or investment properties. If you want to build equity within your housing portfolio, you should focus on adding on extra’s to your home which add to the homes equity, get regular valuations and refinance where possible and by making use of mortgage offset accounts to maximize your offset balance.

Adding on extra’s

You can add immediate equity to your home by:

  • Building a pergola outside your backyard;
  • Adding roller shutters on your windows;
  • Getting the roof tiles recolored;
  • Getting your front lawn landscaped;
  • Getting the outside of your house repainted or if it’s a brick home getting the brick rendered; and
  • Get ducted air conditioning installed.

Get a valuation and look to refinance

You should aim to get a valuation on your property every 18 months. You can score better finance rates by paying off as much of the outstanding loans as possible whilst you get the valuation finalized. Refinancing will give you a lower interest rate, together with the additional repayments and the recent valuation, you will achieve an instant equity.

Make use of mortgage offset accounts

If you have multiple rental properties that are generating income for your and are still working full time – you may benefit from having all of your income being paid into the mortgage offset account.

The balance of the account is considered equity within the properties despite not being paid into the loans. For example, if you have a balance of $300,000 in a mortgage offset and outstanding investment loans of $900,000 you will have an outstanding loan balance of $600,000.

Deduct the loan balance of the current property valuations say, $1,500,00 would give you $900,000 in equity.


How to finance a land and building package

Typically, financing a land and building package is done one of three ways. This article will explain the ins and outs of each strategies. It’s important that you take into account your individual circumstances and seek financial advice before you make a decision about what is right for you.

Purchase the land with a mortgage

When you purchase vacant land, you may be required to build within a 3-year period. This means you have up to three years to pay down as much of the mortgage on the land as possible. As you have already purchased the land and obtained and payed off some of the mortgage. You are going to have more financial room to organize a construction loan. You should note that construction loans have higher interest rates than a traditional home loan. This is because the risk of the loan is measured against the general risk of not completing the build.

Construction Loan

You can generally borrow up to 95% of the value of the home once it has finished being built.  Construction loans draw down on the perceived value of the build, hence why their interest rates are higher. Many people wait on obtaining a construction loan in order to avoid being crippled by the interest of the mortgage on the loan and the construction loan simultaneously.

Turn-key Land and Construction Loan

These ‘Turn-Key’ loans are rather expensive, this is because you are borrowing to build on new land with a house and land package. These house and land packages can be expensive. Considering the interest rates on the construction loan and the mortgage on the land, it can be very expensive during the building period. However, once it’s built you can refinance.


What is negative gearing?

Negative gearing can be attributed to any asset but is commonly used for investment properties. Negative gearing is more of a tax strategy than an investment one; it occurs where expenses from an asset are higher than the rental income earned on the asset.

The advantage of negative gearing your investment properties is that you can deduct losses associated with your property against the income you earn from your salary. Generally, the tax policy in Australia dictates that people pay tax on their personal income, deduct expenses which nets taxable income. Hence, tax is only applied to profit not to revenue.

The ATO recognize that people have different circumstances and that people generally have different costs attributed to producing their income.

It is advantageous to make a technical loss on an investment property, whilst the property itself appreciates in value. An increase in equity is still achievable whilst making ‘interest only’ payments on the loan. Thereby still making a profit on the property.

So, we know that negative gearing is used to achieve a technical loss whilst gaining equity. It is possible to carry on this kind of strategy for many years, but you’ll have to watch out for market volatility. This kind of investment strategy is scalable, and many investors have more than one negative geared property using this strategy.

It would not be uncommon for a couple to have a few negative geared properties. So that both spouses pay little income tax.

How and when to refinance your home

How and when to refinance your mortgage

Playing the balancing game of trying to save money vs trying to grow your portfolio can be a mentally exhausting game. Finding the balance is an estimate made on a case by case situation. Anyone giving you a ‘rule of thumb’ idea or advice is guessing.

It is not going to be helpful for your situation to take advice based on pure speculation. This article will stay away from speculative ideas and instead focus on the process of refinancing your home and the material indicators of when you should do so.

Before taking the leap of marketing your situation to various banks in hopes of getting a better rate, you need to be in a relatively stable position. If you have a goal on refinancing, you need to be able to defend your reason for doing so to the bank and this is best done through a budget. It’s not enough to simply have one, you need to demonstrate to the bank that you can stick to it.

When you personal accounting is in order, you may want to make a few extra payments after refinancing to take advantage of the lower interest rates. You can make an affidavit to this effect in supporting documentation to the bank.

If you have been with your current interest arrangement for 18 months and have been prudent with your payments (as well as making additional payments where possible), it may be time to request a valuation of your property. The property valuation will help the bank ascertain the market value of our property.

You can increase you chances of being approved for refinance and getting your sought-after rate by:

  • Keeping up to date with your payments with your existing loan and making additional payments were possible;
  • Having a budget and sticking to your budget, creating a buffer of savings outside of your existing commitments;
  • Providing an affidavit to the bank explaining that you will make additional payments when approved for the lower interest rate; and
  • Getting a valuation on your property within 18 months.

After you have done so, you are likely to get refinance on your home. If you do not get the rate that you are after do not be afraid to shop around.