Q&A Usable Equity in Your Home

Transcript:

DD: Time again for our weekly chat with Jason Dwyer, managing director of station sponsor, Dwyer Property Investments. When you think of Sunshine Coast property, the Dwyer name does come to mind, because the Dwyer family have been in business on The Coast for thirty-five years.  Jason has teamed up with his brother, Wayne, who owns Dwyer Quality Homes.  Together, they build and sell some of the best residential and investment properties on the Sunshine Coast. We’re talking about the Australian dream, Jason.

JD:  We are, Des, and we’re not just talking about buying your own home.  As many well-off people will tell you, property is an excellent way to make money… provided you make smart decisions!

DD: I’m all ears!

JD:  Well, a lot of people still think they have to be debt-free before they can buy their first investment property.  They don’t realise that they’ve been accumulating usable equity in their own home, for years.

DD:  You’re referring to people who pay off their home loan, faster, and the fact that property values on the Sunshine Coast have been rising for years…

JD: Exactly.  Equity is the difference between the value of your home, today, and what you owe your lender.  That money – the equity – is yours.  Not the banks.

DD: But how much of it is usable?

JD: Good question. There are various opinions on that and lenders have slightly different criteria.  But, I like to take a cautious view and a good rule of thumb is to retain twenty per cent of your property’s value, as equity.  Anything above twenty per cent is usable equity… money that you can use as a deposit on an investment property.

DD: To let’s talk real-world numbers here.  What about a house that’s worth, say, 750 thousand dollars?

JD: OK… if your home is worth 750 thousand and your loan is 450 thousand, you have 300 hundred thousand dollars of equity.  As I said, I like to take a conservative view, so I recommend retaining twenty per cent of the overall value of your property, as spare equity.  That would mean retaining one-hundred-and-fifty of the 300 thousand dollars of equity you’ve built up over the years.  And it’s that leftover 150 thousand you use for your investment property.  It could go towards a tax-deductible deposit.  You’ve retained a comfortable financial buffer in your own home, but now you own a second property that can pay for itself via the rental return.  And… the best bit… you have two pieces of real estate that are increasing in value, instead of just one!

DD: It does make sense.  Listeners who want to learn more about the usable equity in their home should get in touch with you, Jason…?  As an investment consultant and licensed real estate agent, he’s offering Sunshine FM listeners a free financial health check...

JD: I’d like to talk to them.  Absolutely, Des.  I’m an investment consultant and licensed real estate agent, and I offer a free financial ‘health check’ via a home visit or video call.  No obligations at all.  There’s also a lot of helpful online information about this and other topics we’ve discussed over the past few months.  Just go to the Dwyer Property Investments YouTube channel, and visit us at Dwyer-property-investments-dot-com-dot-au.