It is not a surprise to most of us that the Brisbane Property Market has seen strong growth over the last 12 months.
We have seen this in the news headlines for months. There have been a lot of buyers in the market, and very few sellers, and this is putting strong upward pressure on prices.
So how can you start an investment portfolio in Brisbane if you have not been able to save a deposit for another purchase?
If you already own a property in Brisbane, this means that you might have some strong equity growth in your property! In the last 12 months alone, according to CoreLogic Data, the median value of Brisbane house prices increased 17.7% and unit prices increased 7%.
Let’s quantify what this might look like for you. See below a table of previous values and current values based on the median price growth for Brisbane in the housing sector. We have also included a column for the growth that might have been achieved over the last 12 months based on the median rate of growth for the city.
|August 2020 Value
|August 2021 Value
This growth in property values over the short term, is not something most property owners think about. But the fact is, being able to leverage from this growth is what can enable any property owner to kick start an investment portfolio themselves.
When looking to invest in property, most individuals are seeking either a boost to their current cashflow position, or longer-term growth which contributes to wealth creation. The balance between income now (ie: investment yield) and growth in the future (ie: equity) will always depend on an investor’s unique circumstances.
Regardless of the investment strategy (ie: the balance between capital growth and yield), it is always better to maximize investment debt when you also have personal debt (ie: a home loan that you are paying off). This is where a clever finance strategy can ensure you get the best tax advantages associated with your investment properties as well. These three factors must ALL be considered based on an individual’s personal circumstances when you start an investment portfolio for your future.
For many property investors, the hardest part is actually saving the deposit to get started. A lot of investors think that you need to set aside additional cash until you have enough to cover the contributions towards a deposit, as well as purchase costs for a property purchase.
But in actual fact, this is not the case when you are already a property owner. Whether you already own a home or another investment property, you can use the equity growth in that property to start an investment portfolio! Here’s how …
The equity is simply the difference between the current value of a property, and the amount owing on that property (eg: the mortgage amount). The equity position can be increased either by paying off the debt (ie: through repayments) or through growth in the asset value (Ie: capital growth).
Generally, a bank will allow you to borrow up to 80% of the value of a residential property without needing to take out Lenders Mortgage Insurance (LMI), subject to their assessment criteria of course. LMI only applies when the amount of borrowed funds exceeds 80% of the value of the property. What this means is that you can potentially tap into the additional funds that sit in your home as equity. This is especially exciting because, with recent market growth in Brisbane, the market itself has done a lot of the hard work in creating the equity!
So how can you take advantage of this increased equity in your property to start an investment portfolio?
It is really quite simple!
- 1. Get in contact with your Mortgage Broker today so that they can provide a valuation estimate on your existing property to determine its current value. Your Mortgage Broker will also help you calculate your available equity.
- 2. Perform an assessment of your borrowing capacity for another property purchase.
- 3. Re-mortgage or re-finance your existing facility to draw out the equity as an equity loan which you can use as a deposit for the next property purchase (again your mortgage broker can assist with this process).
- 4. Ensure you can afford the investment as well as any additional repayments that may be necessary to hold that investment property.
Once you understand how much you can afford to pay for an investment property, then you can start your research in terms of where to buy and what to buy so that your investment purchase achieves the goals you have set for yourself and your family. We encourage all investors to seek professional assistance if they are unsure of what type of property might be best for their unique circumstances.
In terms of Brisbane as a location for your investment, there are a few things that make our city a great pick!
1. Brisbane is a very affordable market. Our median dwelling value is $598,615 according to CoreLogic Data at the end of July 2021. Compare this to other capital city median values below.
|Median Value as at July 2021
2. Brisbane offers strong gross rental yields of 4.0% compared to Sydney at 2.5% and Melbourne at 2.8%.
3. Brisbane has experienced positive net migration due to interstate migration over the last 12 months which means more people are moving to the great South East, and therefore more people need somewhere to live.
4. Brisbane also has a rental crisis right now, with the city-wide vacancy rate sitting at 1.3%. Rents in the housing sector have increased 9.4% over the last 12 months.
5. Brisbane’s response to the covid-19 pandemic has been superior to other capital cities and we have the lifestyle that many Australians are seeking, which is why so many people are moving interstate.
6. A lot of infrastructure which will better connect south-east Queensland will be fast-tracked due to the announcement that Brisbane will host the 2032 Olympic Games. This will benefit our city both in the lead-up to the Games and for many years thereafter.
The list of reasons why Brisbane is a great place to invest right now could be longer, but we have outlined just a few. If you want to set yourself up for a better future by using equity from your existing property as a deposit for an investment property – speak to your mortgage broker today. This is a great way to start an investment portfolio. Using this strategy and taking advantage of the recent growth in the Brisbane market, without having to save cash for a deposit is clever. It is a great way you can get ahead and potentially begin your property investment journey.