Using equity to add value

Question from Ben updated on 7th September 2018:

I am currently renovating my property in order to get the maximum value out of it when it comes time to get it valued. I will then look at purchasing my first investment property. I am currently doing a bathroom job and looking at replacing an aging/rotting fence around my property.

However, I have a strict budget and at this rate can only afford to do the bathroom. So my question is would it be wise to pull equity from the property to complete the fence? It would add further value but I would have dipped into the equity to do it? Or would it be better to just complete the bathroom and leave the fence, and then re-value with equity untouched - but with the property potentially having less value?



Our expert Kris Pedersen responded:

I am presuming this is your personal residence you are referring to. Note that I have no information as to how you stack up in regards to meeting bank servicing so I am just commenting on the equity side here.

As you should be able to top up to 80% the best way to look at this is that for every $10,000 you need to put into the renovation job if you add more than $12,500 of equity then you will be putting yourself in a better position to pull equity out later on. That’s because you should hopefully be able to top back up to 80% of property value and 80% of the increase will be at least what you have put in.

On the other hand, if it is less than the $12,000 then you will be eating into the amount of equity you may be able to use on the investment side.



Kris Pedersen of Kris Pedersen Mortgages is a commentator on property and finance. His team sources top finance strategies.

Search the Ask an Expert archive

Browse all questions in the Ask An Expert Archive »

Site by PHP Developer