December 06, 2015
Equity and Leverage - what are they and how can they help me?
What is equity? That takes me back to my university days and Accounting 101 (which is longer ago than I care to admit). I can still see my lecturer & that equation on the board.
Assets = Liabilities + Owners Equity.
As I never intended to be an accountant, I never thought I’d actually use that in life - but here I am.
Essentially, equity is the bit of your house that you actually own – or to put it another way – the value of your property minus the outstanding debt on the property.
As a simple example, if you had a $1,000,000 property and owed $600,000 on the mortgage – your equity would be $400,000.
So how can I help me? Leverage!
Using the above example, you could use your existing equity to buy an investment property for $650K with no cash deposit.
At a simplistic level, here’s the math:
Property values: Debt: Equity:
$1,000,000 $600,000 $400,000
$650,000 $650,000 $ 0
$1,650,000 $1,250,000 $400,000
This would leave you with an LVR (Loan to value ratio) of 75.75%.
Below the magic 80% mark, and therefore no LMI (Lenders Mortgage Insurance.)
Call us and make a no obligation appointment to come & chat about whether this is possible for you. Call Hugh on 0429-010-146 or Robert 0411-555-315.