Looking to build an investment portfolio?

If you’ve owned a home over the last 7 or 8 years in Sydney, there’s a good chance you have seen the value of your home increase drastically. If the value of your home has increased, it may be the right time for you to consider the opportunities available to you by building an investment portfolio.

For example, many Australian homeowners use the value of their home as a tool to build their investment portfolio and increase their wealth. This can be done by investing into shares and/or a property.

How does this work?

This concept involves using the equity in your home to fund a property purchase. Equity can be defined as the difference between your home loan balance and the value of your home.

For example:

A property purchased in 2015 for $800,000
Current Mortgage: $500,000
Current Value: $1,200,000

Equity: $700,000

How do I find out how much equity I have in my home?

This process is far simpler than you may think. All you need to do is reach out to your mortgage broker or bank and request a valuation on your property. This process is typically free of charge and doesn’t involve completing any additional documentation.

The bank then requests a valuation from a panel of random valuers, who will then use a collection of local comparable sales to determine a fair market value for your property.

If the market value determined by the valuer is higher than your loan balance, Orium Finance will be more than happy to chat to you about the prospect of utilising this equity as a tool to build an investment portfolio.

Investment considerations – understanding your borrowing capacity

If you don’t feel as though the value of your home has increased since your purchase, but you would like to understand if you have the potential to explore an additional investment, then you can also reach out to our team for a free servicing assessment.

We’ll assess the following:

• Savings/cash – to purchase a property without using home equity you will require cash savings to fund the deposit and the stamp duty payable on a purchase.
• Servicing – this is a method run by banks to determine how much of a loan an individual or couple can afford. This assessment considers your income, expenses and other debts, which will then help determine the level of additional borrowing you can achieve

Each person’s scenario will be unique to them. Therefore, it’s vital that if you are considering any of the above you should chat to your mortgage broker or bank prior to making any commitments. If you’d like to know more about how to best position yourself for borrowing, click here to check out our recent article on this topic.

How do I know where to purchase an investment property?

At Orium we work with many property professionals to assist our clients make the right property decisions. Our sister company, Binnari Property, is a property advisory business that uses analysis and research to identify properties which provide investors with the highest likelihood of achieving strong capital growth and consistent rental returns.

The benefit of engaging professional firms like Binnari is that they are constantly monitoring the various property markets around the country to help investors identify the best locations for investment. To do this, you need to understand the cyclical nature of property markets and what makes a great investment property. Binnari Property’s Head of Research, Dominic Cavagnino, has provided his thoughts below:

‘As an investor it’s hard to know where you should be investing. We’re lucky enough to live in a country where each capital city property market is at a different stage in its respective property cycle.

Understandably, many investors are inclined to invest in areas they’re familiar with rather than outside of their hometown. Having the local knowledge is important to ensure the right decisions are made when purchasing. This might include, being close to local shops and schools, and avoiding the less desirable streets within a suburb. Most investors find themselves making poor decisions when they invest outside of their local area.

So, if that’s the case, you’re probably wondering why would anyone invest outside of their local area? Well, aside from the parts of the process that we can control (i.e the property selection), the performance of the wider property market is instrumental in determining the overall success of an investment, so sometimes it’s worth considering whether an investment outside of your city is the right move for you.

For example, history tells us that Sydney’s strong growth over the last few years means we’re likely to see a more subdued performance here in the next 5 – 7 years. It may be worth considering property in other state and cities. Admittedly, without the right guidance it is hard to know where to start and it’s easy to make mistakes investing in a city that you’re less familiar with. This is what makes Binnari such a useful resource to our clients. Our job is to provide investors with research, data and comfort around where they are investing. Our consistent travel and comprehensive research provide us with an in-depth understanding of the various markets around the country.

Where to from here?

If you think that you may have some equity in your home or you feel as though you’ve got sufficient cash and would like to discuss building an investment portfolio, please reach out to Luke at Orium Finance on 0477 264 089 or email [email protected].