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Episode 4: The reality of equity. What it is... How can we use it?
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In this enlightening episode of "Confessions of a Property Investor," hosts Catherine Andrews, Director of Investments, and Michelle White, Director of Qualifications, delve into the crucial topic of equity in property investment. The discussion begins with a clear definition of equity, described as the value difference between a property's worth and the remaining mortgage. The hosts emphasize how this can be strategically used to purchase additional investment properties, thus kickstarting one's investment journey.
They distinguish between 'good debt' and 'bad debt,' underlining that using equity to acquire another asset is generally a smart financial move, unlike using it for frivolous expenses like holidays. The discussion further explores the practicalities of leveraging equity, advocating for a conservative approach where one borrows up to 80% of their property's value. This method enables investors to acquire a new property without depleting their cash reserves.
A significant portion of the episode is dedicated to the tax implications of equity usage. The hosts explain the benefits of creating a split loan or investment loan, separate from the mortgage, which can offer tax deductions. They also address common misconceptions about increasing mortgages and clarify the financial nuances involved.
Towards the end of the podcast, the risks associated with using equity are candidly discussed. The hosts reassure listeners that the right strategy does not necessarily increase home repayment rates and that having an exit strategy, such as selling the investment property in adverse situations, is crucial.
Finally, the episode wraps up with an encouragement to use equity judiciously for investment purposes, leveraging it as a tool to enhance one's financial portfolio. The hosts tease the next episode, promising to delve into the topic of wealth and associated stigmas, leaving listeners eagerly anticipating more insightful discussions.
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