Join us in this episode as we delve into the essential elements of property investment with Michael ‘Boz’ Beresford from OpenCorp, our resident property investment expert, and Opencorp CEO, Matthew Lewison. In our last podcast, Michael Beresford explored the potential of using knowledge and equity from the first investment property to leap into subsequent properties without needing to save for additional deposits.
Podcast Discussion: Equity - How Does It Work?
· 0:38 - Boz (Matthew Lewison) and Michael delve into the topic of equity, its calculation, utilisation, and risk mitigation strategies.
· 1:08 - Equity explained: The difference between an asset's value and the debt on it, enabling strategic leveraging for property investment.
· 1:44 - Accessing equity: Leveraging existing equity for the deposit and costs of the next property, reducing reliance on cash.
· 2:09 - Costs of accessing equity: Exploring the expenses involved in accessing equity, with emphasis on tax deductibility when used for investment purposes.
· 3:13 - Cross-collateralisation: Discussion on the drawbacks of bundling all properties with the same bank, emphasising the need for a firewall between home and investment properties.
· 4:41 - Mitigating risks: Separating properties across different banks prevents the direct exposure of the home to potential issues with investment properties.
· 6:21 - Financial risk considerations: Exploring scenarios where defaulting on an investment property loan might occur and how risk mitigation strategies play a crucial role.
· 8:36 - Tax benefits: Differentiating interest repayments on mortgages and investment loans, highlighting the importance of setting up loans in a tax-efficient manner.
· 11:13 - Flexibility and control: Discussing the advantages of having properties with different banks, allowing better control over valuations and refinancing options.
· 14:45 - Real-life example: Highlighting a case where a client's decision to refinance and diversify lenders resulted in significant equity growth.
· 17:41 - Existing customer vs. new customer deals: Addressing the misconception that banks offer better deals to existing customers and advocating for regular refinancing to secure better terms.
· 19:15 - Loyalty and refinancing: Dissecting the myth of loyalty in banking and the potential financial benefits of shopping around and refinancing.
· 21:31 - Risk mitigation scenarios: Illustrating practical examples of why having separate lenders for home and investment properties lowers the risk in unfortunate situations.
· 23:50 - Prevention measures: Emphasizing the importance of financial structures, buffers, and prudent management to avoid reaching worst-case scenarios.
· 25:28 - Negotiation power: Explaining how diversifying lenders provides more negotiation power during challenging periods, reducing the risk of losing the principal place of residence.
Quotes and Highlights:
· Equity Defined: "Equity is the difference between what an asset's worth and the debt that you have on it."
· Leveraging Equity: "Once you've created equity, you don't actually have to use cash for growing your portfolio. You can borrow that equity and use it as the deposit and costs for the next property."
· Cross-Collateralisa