Use Equity To Create Cashflow in 4 Simple Steps!
Equity is an interesting topic when it comes to real estate. Smart property investors know that equity can play a key part in creating passive income that accumulates over time, allowing us to eventually work less and ultimately do more of what we love.
But in order to be able to use equity to create passive income, there are some important steps property investors need to take right at the beginning of their journey.
STEP 1: QUALITY IS KING
As property investors we want our acquisition period, the time when we are buying our properties and building up our portfolios, to be quick. The faster we buy our properties, the sooner we can start making enough passive income to achieve our goals – whether that’s a new car every year, a shorter working week or early retirement.
But, simply because we want our buying period to be fast, that’s not a reason to buy any and every property we see. Quality is king when buying real estate.
And, it’s not just quality of the physical building or structure. It’s also quality of location, and quality of the kind of tenants you’ll attract and rely on for regular rent increases.
Making sure your properties will start to gain equity i.e. increase in capital value, depends on the quality of:
- what you buy
- where you buy
- who you rent to
STEP 2: STRUCTURE YOUR FINANCES RIGHT
Knowing that your properties have equity and watching as they increase in capital growth, is an amazing feeling as a property investor.
But, if the way you have structured your loans means you can’t access, or can’t afford to access, that cash, it’s a vanity project. Nice to look at, but a bit useless.
Equity is only going to benefit you, in terms of cashflow, if you can access it.
If you don’t understand finances and loan structure, and need some help and advice, seek out the experts and get some coaching to ensure you’re starting your investor journey in the right way from the beginning.
STEP 3: BUY WELL, DON’T SELL
One of Positive Real Estate’s mantras – buy well, never sell.
If you think the only way you can access equity in your property is by selling it, not only are you wrong, you’re also about to lose a lot of that value to the selling agent and the government in taxes. Whatever you have left will go into a savings account, where you’ll earn a pitiful amount in interest. Selling to access equity makes no sense.
Property investors know they need to retain their real estate for up to 20 years to allow that property time and space to go through the cycles of the market and reach its full potential.
STEP 4: KNOW YOUR NUMBERS
Real estate is a numbers game. From the start we have to know how much money we need to create the life we want to live. Then we calculate how many properties we’ll need and how much rent we’ll earn, to create that income.
Equity is the same. The value of your property has to be high enough (we recommend no lower than $3 million) for equity to be able to act as cashflow. Too low and it’s not appropriate.
Also, taking too much equity value (more than 2 per cent) out of your properties is going to leave you vulnerable.
Seek out some expert coaching and advice from people who know their numbers and can help make equity act as cash flow for you.
GET STARTED FOR FREE
Talk to the experts at Positive Real Estate about where to begin. Our team have decades of experience, about how to borrow, buy and use equity in the current market.
Join our free property investing seminar.
Getting started now means you’ll have the ability to create the future exactly how you envision it to be.
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