One of the most powerful reasons to own property is the fact that you can use your equity that has built up to go out and purchase another property.
This is how you go from one property to two, then two to three and so on for as long as you can access money from the banks.
However, that last point is often the most important when it comes to property; you need to have the bank lending to you in order to keep on buying.
For a bank to give you money, it’s going to require two things – equity and serviceability.
In the current environment, there is a clever way to get more equity on the same property and it all comes down to how the property is valued.
When applying for a loan on a property, the first thing a bank is going to do is to get that property valued. That way they will know what they can lend against it. For most lenders they are very comfortable lending 80% of the value of the property.
However, there is a trick that can help you get this valuation a little higher, meaning that you can potentially access more from a bank.
What we’re seeing in the current market is that desktop valuations are generally coming in a lot better than a full valuation. A desktop valuation is typically an online valuation that banks can use based on data about comparable sales. They are normally instant and free.
On the flip side, the full valuation involves a valuer going out and inspecting the property, going through it and writing up a full valuation report.
For whatever reason, maybe the human element, desktop valuations have been coming in higher recently. That means you can possibly access more from a lender when you go to borrow.
For example, say you own a property and want to tap into some equity. If you order a desktop valuation, it might come in at $1 million. However, the full valuation could show the property being worth $900,000. This difference means that you might be able to access $100,000 more and still keep the banks happy with your LVR.
If you own multiple properties, this is something you can do across your portfolio and it can really make a difference. I do this every six months, so it means I know where my portfolio is at and I am ready and waiting with equity should I need it to fund another purchase.
At the same time, with the likelihood of interest rates coming down at some point this year, you could also see your borrowing capacity jump even further.
If rates fall by just 0.5%, then you are effectively seeing a $50,000 jump in your borrowing.
In real estate, you really need to be across the finance side and it’s these small things that make a difference. By pushing that little bit harder, you could potentially buy another property when others couldn’t see a way to do it.
Down the track, that means your portfolio will end up being that little bit bigger and better. All thanks to the small details like how you get your properties valued.
