The Equity Tactic For Excelling Your Property Portfolio
While long term we know that cash flow is dependent on a good rental income, capital growth is the quickest way our property can pay us back. This comes down to having some smart tactics to get the most out of every dollar of value in our investment properties – something we like to call equity lock.
This is because the one thing we need as property investors, particularly in the acquisition phase of our journey, is access to our money.
The more cash we can lay our hands on, the more properties we can buy and start to get an income from.
Most property investors don’t start out their journey with a big bucket of cash that never empties. The majority of property investors need to borrow money from banks and lenders to get enough cash to buy that first investment.
And the quickest way to buy the next property is to have our first investment pay us back what we borrowed to buy it. In short, we want our properties to pay us back the deposit amount so we can use that money as the next deposit.
WHAT IS EQUITY LOCK – AND WHY IS IT SO IMPORTANT?
Before equity lock, comes equity. Equity happens when your property is worth more than you paid for it. Maybe the average area price has gone up thanks to an improvement in local infrastructure, or there’s a lack of stock so people suddenly need to pay more to live in your location.
Whatever the reason, your property is now worth more than you spent buying it.
Capital growth, as we’ve said before, is a vanity exercise. It’s great to swan around feeling smug that your $450,000 apartment would now sell for $500,000. But unless you do something about it, how does it really serve you?
Equity lock is the one financial tactic that a property investor needs to know how to use to grow their portfolio faster.
Once your property has equity, the smart thing to do (making sure you can still service the loan) is to revalue the property and draw out the increased amount. Property investors then use that cash as a deposit on the next one or two properties, which also yield rent income and capital growth.
IS THERE FALSE EQUITY?
Markets are constantly changing. Over the 20 years that you own a property you can expect the value to go up, go down and plateau. That’s how real estate works.
So, imagine if impacts like COVID-19 or a lack of stock or low interest-rates, push up the value of your property, above what even you think it’s really worth? Even if you eventually lose some of that capital growth and have to wait a few years to get it back, as long as you can service your loan, you still need to act fast and lock your equity in.
Property investors don’t live on capital growth. The income from rent and regular increases in that rent is what allows people to work a three day week. The more properties you own, the greater the passive income.
Locking in equity means you can buy a second, third or fourth property that much faster, which equates to more passive income.
Let the experts at Positive Real Estate teach you about equity lock and how to make it work for you at one of our free property investing seminars.
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