Strategy – Growing your assets through Investing using your home equity.
Most Suitable for – Home Owners with equity available & at least 10 years till retirement
Timeframe– 10 years+
Invest – Shares, Property or Both
Cashflow- Usually negative for a number of years and in time turning positive
If you have
- Home or Investment Property
- Have more than 20% equity
- Are looking to build additional wealth to support your lifestyle in retirement or pay off your home loan faster
- Have over 10 years till you retire
I believe it could be wise for you to read on and consider how to further invest wisely. In order to keep this post short, I will break it down in to three simple steps.
The first step is to completely understand your long term goals and whether it is wise decision. To do this you will need to carefully analyse how you are tracking towards your retirement lifestyle for example and whether you are on the right track or have a bit of work to do. In order to purchase any investment, it's important for your ongoing cash–flow situation to comfortably support any shortfall each year. This ensures you are able to hold your investment long term without being forced to sell unnecessarily. Finally it’s of absolute essence to think through whether purchasing an Investment Property or Share Portfolio is an acceptable risk given your situation and all the things that may happen which could force you to sell.
If you have decided that it makes sense to continue, you will need to check whether the bank will allow you to invest, ideally with out putting a single dollar down from your savings. There are two requirements - 1) Borrowing Capacity and 2) Equity. In order to find out your borrowing capacity, you will need to add up all your income including all the income the Property or Shares may provide. The bank will then minus off your current debt obligations and hopefully the difference is enough to purchase at your desired level. Secondly, to work out your equity you will need to multiply your home value by 80%. If your home was worth $1mil, 80% of the value is $800,000. You will then need to minus off your current debt limit of $600,000 leaving you with $200,000 of available equity. This equity can be used to either purchase $200,000 of shares or alternatively pay for the 20% deposit and the 5% (25%) costs (Stamp Duty and Legals) on the new property. In this scenario, as long as the borrowing capacity was enough this investor could purchase up to around $800,000 without putting a dollar down or $200,000 of shares.
Finally it’s down to the hard bit - deciding on the right asset that suits your long term goals. Your two options are generally Property and Shares. Both are very complex options and decisions however with a bit of common sense and advice you can cut through the noise to buy the right asset that suits you. Both Shares and Property have positives while also many negatives. There are a number of considerations to consider before making the right call.
At Canopy, we help our clients think through the entire situation by undergoing a full health check. We call this 360 degress for $180. If we decide that they would significant value from further advice, we will assess whether investing further is the right decision for their future. Our clients are able to consider both Property and Shares as we do not have any preference. Being Pro-Property and Shares, we are able to help our client make a more informed decisions whatever way suits them. We are paid a fair fixed fee for the advice and therefore our advice is never conflicted in anyway.
If you would like a complimentary phone discussion on your current plans, whether investing could be a good idea for you or some general advice on the challenges of investing in property or shares, please do be in touch.
We would love to hear from you!