Opportunities to tap into the investment property market rarely get better than now for existing Sydney property owners. But failure to use their lazy equity could cost them a small fortune, explains Richard Sheppard.
Over the past few years, Sydney house prices have steadily gone through the roof and many property owners have been quietly celebrating the growing value of their investment. You may be one of them! Yet if you don’t take the next important step, it could cost you hundreds of thousands of dollars, or more, in the long term.
What’s the issue? It’s all about lazy equity – there is a huge amount of underused equity and borrowing capacity in the community. Consider the fact that Sydney housing prices grew by more than 70 per cent in the 5 years to December 2016. On a $700,00 property that represents growth of almost half a million dollars over a five-year period! This extra equity could be used safely and sensibly to buy another home or unit.
So why do many people baulk? In my experience, the main reason is a lack of financial literacy and education about the property market. But if you attend a professionally run property investment course, it can take as little as half a day or one day to learn the fundamentals and understand the enormous opportunity that current market conditions present. I’m not talking about a get-rich sham but a genuine course where the objective is to learn.
Some people also fear over-committing themselves financially if they buy another property. However, it can cost less than $50 per week to fund an investment property – and, with a conservative 5 per cent capital growth, a single property worth $500,000 will grow by $500 per week. Not acting equates to about $26,000 in lost opportunity every year. That amount could potentially have been used as a deposit on another property.
That’s not to say you should jump into the market without managing risks. Given the recent growth in value of properties, you should have enough equity not only to borrow the deposit and costs on another property but also to get extra money to use as a buffer. You could borrow an extra $20,000 to $50,000 just in case something untoward happens.
With this buffer – and having in place landlord insurance, income protection, and life insurance – you will have peace of mind. Another smart move at the moment is to lock in a fixed-rate loan. It is not hard to find a five-year, fixed-interest rate of about 4.8 per cent to 5.5 per cent, which is historically low and provides budgeting surety.
However, a word of warning – according to CoreLogic, prices in the Sydney housing market fell by 0.2% just last week, extending the losses over the past month to 1% and experts are predicting declines for Sydney of between 3 and 10 per cent over the next 12 to 18 months. With these falling values in mind, now really is the time to educate yourself about the market and speak to an experienced advisor about the options available. Then act – and put that lazy equity to work!
Get in touch for a free one-hour property investment consultation, tailored to your individual circumstances.
Richard Sheppard is the Managing Director of inSynergy Property and Finance Solutions. inSynergy is a licensed investment property buyers’ agent that provides professional property investment advice, property market research and specialised mortgage broking services. Visit www.insynergy.net.au or phone 1300 308 808 for a free chat with an advisor.
Important Note and Warning: This information is general in nature and should not be considered personal tax advice. We highly recommend you discuss these concepts with your accountant, property investment adviser and investment finance mortgage broker jointly to ensure any considered concepts are suitable for your personal financial situation, as one effect of the concept may negatively impact another part of your plan.
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