Unlocking equity in your Dunedin or Queenstown property
Thursday 16 Jul 2020
If you’ve owned a Queenstown property or Dunedin investment for a number of years, it could be time to look at utilising the equity you have built up to expand your New Zealand investment portfolio.
What is equity
Equity is essentially the degree of ownership in an asset after all debts associated with the asset have been subtracted. For a property, that means the value of the property minus the amount owing on it.
To give an example, if you own a Queenstown property that is currently valued at $900,000 and you have $400,000 owing on it in the form of a mortgage or other lending, you have $500,000 of equity. From a bank’s perspective, they may be willing to lend money up to 80% of the home’s value, equating to $720,000, therefore when the mortgage is taken off, you have $320,000 of available equity, though this may be different if the property you are borrowing against is for investment purposes.
Your borrowing power
As your Queenstown or Dunedin home loan is paid off, the proportion of the property which you personally own increases – that’s known as collateral. You can use collateral to assist with purchasing assets such a new car or to renovate your property, or it can be used as a deposit on another property, along with other cash or equity.
When calculating your price limit on an investment property, banks will consider a range of factors including equity and your income, which, along with rental income, dictates the level of real estate lending you can service. Different lending institutions will have different policies and structures which can change regularly, so keeping in close touch with your bank or mortgage broker throughout the process of purchasing a Queenstown investment property or a Dunedin property asset is essential.
Equity built up in one property can be leveraged to refinance for the purchase of another property, a process which can allow you to build a high-value Queenstown property portfolio with the potential for great capital gains, or equally a strongly-returning parcel of assets in the Dunedin City Centre residential market, always popular with students in the university town. With interest rates at historic lows, many homeowners are looking at buying a second property to grow their wealth.