Finance advice
Nick Burke

7 killer strategies for manufacturing your own equity: part 3

By Nick Burke

There is a little-known, poorly understood (but highly powerful) strategy for creating instant equity that could drastically speed up your property purchasing. 

Blogger: Nick Burke, director, Property 4 Profit 

Equity Release
An Equity Release is the least understood but definitely the best way of easily creating instant equity. It is so poorly understood that even the vast majority of industry professionals aren’t even aware of it, let alone understand it.

It basically involves organising with the vendor that they will gift to you 10% of the purchase price on settlement day.

But hang on, why on earth would they do that?

The key is usually that the vendor needs to act fast and wants the transaction to settle quickly. Often this happens where a vendor owns more than one property. Typically a builder has kept, say, five units in a complex of 20 for a couple of years after they have been built.

Then they decide they want to liquidate, usually to invest their money into the next project. And for the Equity Release model to work, they need to be motivated to move quickly. This is because rather than just putting those five properties on the market and taking several months to sell them, they need their money out now.

So they are offered a lower nett price for a quick transaction.

Gift
But with the Equity Release model, the price is not discounted, or even rebated; it’s gifted.

So on a property that is worth say $350,000, a valuation is done. That is an independent, typically conservative bank valuation, ordered by your lender. The valuation comes in at $350,000, the contract is $350,000, the price is $350,000 and $350,000 gets recorded with the land titles office. However the magic is that the investor only settles on $315,000.

Conceptually this is quite complex, and many seasoned investors at this point say ‘hang on, how will the bank settle on $315,000 when the price is $350,000?’ This is where the Equity Release triggers. The $35,000 equity that is being generated for the buyer, 10% in this example, is signed over from the seller to the buyer on settlement day. This is the amount by which the seller has agreed to discount the property, in exchange for a fast transaction.

So 90% from your bank and 10% from the seller makes up the entire purchase price.

So in this example the buyer has generated 10% equity simply by buying the property in this somewhat unusual way.

The Penny Drops
While this is always a little confusing at first, once the penny drops, the potential for investors buying in this way is huge. Let me explain…

Not only has the buyer generated 10% equity, as they similarly could have with one of the other Instant Equity methods, but the beauty of this system is they have done so instantly, on settlement day. All the other methods of creating instant equity such as renovating, building and networking take time, often a year or more, before the equity can be visible in the property, so they are not really “instant” at all. What you really want is for the equity to be visible to your lender, by way of an independent bank valuation as soon as possible. And with an Equity Release it is available within just one day…settlement day.

So guess what you can do next…?

…that’s right…go again.

Recycling Equity
In the above example you went into the transaction with (say) a 10% deposit available, ready to settle. And the bank came up with 90% and the seller came up with 10%. So what happened to your 10%?

Nothing; it’s still available. It is still sitting in your bank account ready to be used on property number 2, or anything else you want to use it for.

So buying in this way can greatly accelerate the rate at which you can purchase investment properties. Because you don’t need to wait say a year or more between each property, for the equity to be generated. Here the equity is generated instantly so that it is available instantly for you to move onto your next

transaction.
As I mentioned at the beginning, this method of buying and generating instant equity is pretty unusual. Hardly anyone knows about it and fewer again really understand it.

You have several options available to you if you want to generate instant equity. We have reviewed them over the last four blogs in this series. Click here for part 1 and part 2 in this series to review all the options that we have covered, or here for an overview of instant equity.

No prizes for guessing which method is my personal favourite.

 

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About the Blogger

Nick Burke

Nick Burke

Nick Burke is a successful investor and Director of Property 4 Profit. He has over 20 years’ experience in property, Accounting and Financial Services. Nick trained as a Chartered Accountant, holds a Bachelor’s Degree in Business Administration and is a Licenced Real Estate Agent.
Property 4 Profit is an award winning company and a Corporate Member of Property Investment Professionals of Australia (PIPA). Property 4 Profit specialises in sourcing for their clients two main sorts of properties. One is Positive Cashflow properties and the other is properties on which there is Instant Equity available. Generally this means investors actually bank 10% equity within one day of settlement, supported by independent bank valuations. To find out more visit www.property4profit.com.au

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Tune in to the latest episode of Property Showcase, the podcast with the inside track on the products and businesses that will help turbocharge your portfolio, maximise returns and make your overall investment experience seamless and stress-free!

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To hear more about these services, make sure to tune in to this episode of Property Showcase!

 Make sure you never miss an episode by subscribing to us now on iTunes!

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Son Pham is the accredited Head of Mortgages at Rethink Financing\/Rethink Investing. He has over 6 years\u2019 experience writing loans, over 12 years in the wealth management industry working for the likes of CBA, AMP and private practice and he is also a licenced financial planner (AFSL 326450). He has multiple investment properties that are cash flow positive which help pay his mortgage on his home and fund his lifestyle.<\/p>\r\n

Son is able to write all types of residential and commercial property loans.<\/p>\r\n

In this episode of Property Showcase, head of mortgages at Rethink investing Son Pham joins host Tim Neary to unpack how an investor should approach getting a mortgage in place with banks tightening down on serviceability.<\/p>\r\n

Hear from\u00a0Son\u00a0about:\u00a0<\/p>\r\n

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    In this episode of Property Showcase, director of investment services for Open Corp Michael Beresford,\u00a0joins\u00a0editor of Real Estate, Tim Neary to share why he disagrees that the cooling market means that the best times are behind us.<\/p>\r\n

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Mortgages in a tighter lending economy and why Brisbane is a good option
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Will Magee has had ambitions to enter into the Australian property market for quite some time, but it has been more than just finances holding him back.  Having been granted permanent residency just two weeks ago, Will is wasting no time and is now in the process of signing papers and finding his first investment property.

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In this episode of the Smart Property Investment Show, Will joins host Phil Tarrant to share why he is purchasing his first property in partnership with his brother, discuss the complications that can arise from such a strategy, and unpack the ongoing plan for building a joint property portfolio with his brother.

Will will also share how they approached saving for their first property, why he is taking out the mortgage in his name exclusively, and share their savings plan for the year ahead.

If you like this episode, show your support by rating us or leaving a review on iTunes (The Smart Property Investment Show) and by following Smart Property Investment on social media: FacebookTwitter and LinkedIn.

If you have any questions about what you heard today, any topics of interest you have in mind, or if you’d like to lend your voice to the show, email [email protected] for more insights!

RELATED AREAS OF INTEREST:

From property in Australia to a ski lodge in Japan
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A property investment plan years in the making
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  ["title"]=>
  string(75) "Regional Victoria showing up Melbourne in price performance, new data finds"
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  ["introtext"]=>
  string(139) "

Median house prices in regional Victoria outperformed that of Melbourne in the June quarter, the latest REIV figures reveal. 

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Median house prices in the regions rose 4.0 per cent to $419,500 but in Melbourne they dipped by 0.6 of a percentage point to $840,000.

The result in Melbourne was due to a 0.8 of a percentage point fall in prices achieved at auction; this was despite a lift of 2.3 per cent in private sales.

Inner Melbourne suffered due to auction prices, where median prices fell by 4.9 per cent to $1,459,000 but it was middle Melbourne that was hardest hit, with a 5.4 per cent drop to $974,500.

Outer Melbourne had a good quarter with the median rising by 0.5 of a percentage point to $681,000.

Apartment prices in regional Victoria grew by 3.7 per cent to $304,500 while the metro media was up by 0.5 of a percentage point to $604,000.

REIV President Richard Simpson said that despite fewer sales, many sectors of the market were performing well.

“2017 was a bumper year and while the trendline has flattened, despite the fall in median house prices in the June quarter, median prices are still up this calendar year for both houses and units, in Melbourne and in the regions,” Mr Simpson said. 

In particular there was been strong growth in regional centres which is probably due to the first-home buyers’ concessions said Mr Simpsons.

“The first-home buyers’ concession has been a boon for regional areas. A new entrant to the property market buying a house at the regional median will pay no stamp duty, while a first home buyer of an apartment in Melbourne at the median price would pay stamp duty of nearly $25,000,” he said.

Mr Simpson said that more prospective buyers are looking towards regional Victoria which is also having an effect in Melbourne.

“Melbourne’s outer perimeter continues to grow. Small increases in the June quarter mean that the median prices for both houses and units have risen over 10.5 per cent from a year ago.

Mr Simpson said moving forward that vendors need more realistic expectations as the highs of 2017 are now over.

“Negative chatter about the future of the sector coupled with stronger lending controls by financial institutions has created some uncertainty and vendors need to be realistic with their price expectations,” Mr Simpson said.

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Regional Victoria showing up Melbourne in price performance, new data finds

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