Create wealth

Know your strategy and options

The first thing is to be clear on what your investment goals are and when you want to reach them. Setting a realistic timeframe can help you achieve your personal investment goals and stay focused.

Be honest about your risk tolerance. Do you want to play it safe, or are you prepared to ride the ups and downs of the market? These are just some of the things you'll need to consider when preparing your investment plan.

For more information, visit MoneySmart.

What is equity?

Equity is the difference between what your home is worth today and how much you currently owe on it. For example, if your home is worth $400,000 and you owe $150,000, you have $250,000 in equity. Your equity may support further borrowings. Typically, many lenders allow you to borrow 80% of the value of your home without mortgage insurance. In this example, 80% of the property value is $320,000. Subtracting what is currently owed, $150,000 from the 80% of the property value $320,000 leaves $170,000 potentially available to go towards your investment purchase.

You may be able to borrow more than 80% of your home value if you are approved for mortgage insurance and if you can service the loan, however there are costs associated with this.

Build wealth through equity

Use your equity to build wealth through property investment

One way to help build your wealth is to unlock the equity in your home to invest in a rental property. Investing in property can give you tax advantages (through negative gearing and claiming depreciation allowances).

Investing in property is not as hard as you think. It's a good idea to first speak to your financial planner or accountant to make sure that your investment plan is right for your financial circumstances. Once this has been decided, we can help you make the right decision about your investment loan.

For more information on our residential investment loans, ask one of our home loan consultants.

Still paying off your home? We’ll show you how you can still invest.

If you're still paying off your home, you may be in a position to use your equity in your home and start investing sooner.

Here’s a tip for you.

  • If the value of your home has increased since you bought it, your equity should have increased too.

Note: You should speak to your financial advisor or accountant to make sure you can afford the additional costs associated with an investment property.

Case study

Case study: Accessing equity to purchase an investment property

Phil and Lisa's current home in Coburg is worth $600,000 and they have an existing home loan of $100,000. They want to buy a unit in Fawkner for $350,000, but they don't have any funds to contribute. To buy the property and cover the deposit and purchase costs, they need another loan of $380,000.

Option 1: 

Loan no.PurposeLoan amountSecurity descriptionType
Home in Coburg valued @ $600,000
Loan 1
Home (owner-occupied) $100,000 Coburg Variable
Fawkner investment unit purchased @ $350,000
Loan 2
Fawkner purchase price and costs $380,000Coburg & FawknerInterest only

option 1Some points to note:

  • Properties and loans are linked together (cross-collateralised).
  • Simple structure.
  • Two loans (one owner-occupied and one investment).
  • Considerations – potentially limiting when life changes occur.

Option 2:

Loan no.PurposeLoan amountSecurity descriptionType
Home in Coburg valued @ $600,000
Loan 1
Home (owner-occupied) $100,000 Coburg Variable
Loan 2
Fawkner purchase deposit and costs$100,000 FawknerInterest only
Fawkner investment unit purchased @ $350,000
Loan 3
Fawkner purchase $280,000Fawkner Interest only

option 2Some points to note.

  • Properties/loans not linked (not cross-collateralised).
  • Foundation to enable future investments.
  • Provides increased flexibility (upgrading/downsizing; selling off investment property). 

Budget

Create a budget

The most important part of making your investment plan work is creating a practical budget. Sticking to your budget means you take full control of your finances and helps ensure you have enough money to pay your investment-related expenses such as repayments.

Here are some useful links.

  • Visit You and money for more information on how to plan and create an achievable budget.
  • You may also find our Budget Planner useful in helping you create your budget.
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