Is your equity sleeping?

by Aussie Broker, Dick Grant
I have been doing business in the Territory for around 6 years now. In that time I have seen property prices explode to unbelievable levels. Remember when the first private property was sold here for over a million dollars? It was only a few years back, now it’s common place to see properties hitting that magic mark.
Now the headlines are saying that our market may cool somewhat. I’m not in a position to say whether this will happen or not, but I will say that I have been amazed that things were so buoyant here for so long.
Our population growth is tiny compared with other areas of Australia, but we seemed to have a real shortage of property. Nothing has really changed, it’s not like thousands of extra homes were build here in the last few years (although obviously units have been springing up all around Darwin city). Yet almost overnight it seems it is taking a lot longer to sell homes that were being snapped up only a few short months ago.
But whatever was driving our housing boom, there is no doubt that if you have held a property in Darwin over the past 5 years or so, you could have hundreds of thousands of dollars in sleeping equity sitting there doing very little. If it is your intention to stay in the Territory long term, this equity won’t change your life, because if you sell and move the new property you move into will also have gone up in value by around the same amount.
However I have also seen hundreds of every day Territorians using this sleeping equity to their advantage. Every day people who understand the power of equity are using it to enter into the investment market either by purchasing shares or by purchasing residential investment properties.
The Australian Government has introduced attractive tax concessions to assist investors to build new homes to help fill the void due to the shortage of public housing. A good mortgage broker can show you how to do this safely without putting your own home in jeopardy in the event that things don’t go according to plan. I have seen people buy a home interstate for $400,000, rent it out and pay less than $100 a week to cover the costs of holding a brand new investment property. This figure of less than $100 is after their taxation benefits have been calculated. Of course as costs rise and rents rise accordingly, these properties eventually become positively geared. The trick is to hold on to the properties as long as possible.
It doesn’t take a genius to work out that if a property is costing you $5,200 a year to hold ($100 x 52) and is going up by $20,000 (a 5% return) in value a year, then you are onto a good thing. But I see this happen for people regularly. Each individual investment is different though and careful planning and research is required to ensure that you have invested in an area that will give you consistent growth and is in the right area to attract consistent tenancy.
There can be major pitfalls in a strategy of this nature and I would strongly advise that you do not tackle this by yourself. Speak to a mortgage broker who has come recommended to you and who is MFAA accredited. I have a dedicated person who works with me who specialises in obtaining finance for investors, and who is an expert in setting up investment finance correctly.
Also speak to an accountant to get an understanding of the taxation implications and how it will affect your cash flow. I would advise anyone with equity to do a budget and if you are in a position where you could put aside $100 towards your future, then seriously consider your options.
Property booms come to areas like Darwin and Alice Springs infrequently and we have just come through what may be a once in a generation property growth cycle. Now could be a perfect time to use this to your advantage and look at all of your investment opportunities both here in the Territory and interstate.
This strategy is not for everyone, but if you don’t at least explore how you can benefit from the enormous growth we have seen in the Northern Territory over the past 5 years, you could miss out on a most significant opportunity.
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