The Perth real estate market has performed well over the past 18 months, with many suburbs recording double-digit growth in values.
From a finance point of view, this creates an interesting opportunity for investors but one that is rarely exploited to its fullest.
The opportunity involves gaining access to – but not necessarily using – your equity until a future date when the market cools and good buying opportunities present themselves.
You basically want to guarantee that you’ll have access to money when the right opportunities come along, ideally when the market favours buyers more than sellers.
Now is a good time to execute this strategy because it’s often easier to gain access to your equity immediately following a period of growth than when the market is weak. This is because lenders are generally more willing to lend and valuers have the sales evidence to justify strong valuations.
There are always stages in the property cycle when finance dries up a bit, making it more difficult to obtain a loan. When this happens, it severely dampens the demand for property and therefore provides those with access to finance a significant advantage.
Equity can be a powerful tool for building wealth but only if you can use it.
How do you go about gaining access to your equity without necessarily using it? There are a number of options.
Through refinancing you might be able to get a ‘top-up’ or ‘cash-out’ on an existing loan and either put the money in an offset account or deposit it directly into the loan account for future redraw.
The beauty is that you only pay interest on whatever portion of the loan you use, so it can sit there waiting for your next investment opportunity.
Access to credit can be a powerful tool for property investors, but it can also be an unhealthy temptation for some.
Just like a credit card, you can essentially use the money for anything, so you need to remain disciplined. If you are, then having the funds available may give you the inside edge on your next investment.