Is Now the Time to Use the Equity in Your Home for Investment Purposes?

By Jason Fittler

My phone rang, I didn't know the mobile number on the screen but like most people I picked it up and politely answered. The first words by the voice on the other end, “Is the equity in your home working hard enough for you?” 

Another cold caller with another scheme which as going to make me rich.

“Would you be interested in earning an extra $30,000 per annum, with no cost to you,” was his next line.

I mean, who wouldn’t be interested in an extra $30,000 per annum.

Unfortunately, for this cold caller I have been around this block a few times. 

So I asked, “Could you give me the name of your company and your Australian Financial Services Licence number?” Pause, “Sir our product allows you to make $30,000pa, would you like an extra $30,000 pa?”

I repeat my question and explain that to promote a financial product or service you need to be licensed. Another pause, “I will get my supervisor.” Then he hangs up.

Marketing of financial schemes have been ramped up since the GFC, especially in the investment property sector. The basic idea is that shares have done so poorly you should look towards property as a sound and safe investment.

Property is as volatile as shares, ask anyone who is selling their property right now. Prices are depressed and with unemployment rising it is safe to say that property prices are not going up.

The same can be said for shares. I do not expect to see much in the way of capital gains for the next 2 years or so.

As such if you have equity in your home, leave it there. Gearing to invest in anything need markets which have high growth. This is because the interest costs will always be higher than the yield an investment can generate.

What about negative gearing?

This is where the loss you make is used to offset your income from other sources and reduce your assessable income... and therefore you get a bigger tax refund at the end of the year. Losing $100 to get a $30 tax refund never made sense to me!

Right now is the wrong time to borrow and invest for any purpose.

Now is the time to use any surplus funds you have to reduce debt. If you have any left over, invest that. But do not borrow.

In these markets you will find that you can build a good quality portfolio quickly by using your surplus income to buy the quality opportunities when they come up.

Back to the first words uttered by our cold caller, “Is the equity in your home working hard enough for you?” The important words in that sentence are, “your home”. Your home is not an investment, it is a lifestyle choice. And for your family it is often the foundation of the family unit.

If you start treating your home as an investment tool it will soon be lost. A lesson many Storm clients learnt the hard way.

So now when you receive that cold call about the equity in your home, you will know what to do, simply ask them for their Australian Financial Services License details… they will soon hang up.

For more information please contact us on 07 4771 4577.