Using Home Equity to Buy Investment Property: Funding SDA Property Investment

If you’ve been considering your financing options to enter the SDA property investment market, then you may be curious about whether you can use the equity in an existing home to support your NDIS investment endeavour.

Using home equity to fund SDA (Specialist Disability Accommodation) housing and other investment properties has the potential to be a viable strategy, but it also comes with potential risks and considerations. Here are some things to keep in mind:

You may be putting your family home at risk for the sake of an investment property

If you decide to use home equity to fund your investment properties, you may need to take out a home equity loan or a home equity line of credit (HELOC). This means borrowing against the value of your home. This is a potentially risky loan type as it puts your home at risk if you face financial difficulties and are unable to repay the loan.

Rising interest rates

Consider the prevailing interest rates while taking out a home equity loan. Low-interest rates can make borrowing more attractive, but with the rate of inflation in Australia remaining high, it’s possible that interest rates will remain high for longer than the typical investor may anticipate. If you have an existing mortgage or home loan on an existing property, the interest rate on that mortgage may be high, as well as that of an investment loan.

Opportunity risk on your usable equity

Many Australians feel comfortable in having a level of equity ‘up their sleeve’ to be able to utilise in tough financial times. By leveraging your usable equity to buy an investment property, it potentially takes away the opportunity to use the equity for emergency funds, or other investment opportunities. (Depending on any existing loan structure, this may potentially also extinguish the balance in an offset account).

Risk Management

Any form of property investment carries inherent risks. Ensure you have thoroughly researched the potential returns, market demand, and vacancy rates of SDA properties in your desired area, it’s important to fully understand the potential risks associated with leveraging your home equity for investment purposes.

Cash flow

Before investing in any property, including SDA housing, assess your cash flow carefully. Ensure that the rental income from your properties can cover not only your mortgage payments but also other expenses like maintenance, insurance, property management fees, and taxes. SDA funding is an attractive feature of NDIS investment properties as it provides funding from the government in addition to the rental income being received from the properties.

Property investors sometimes opt for an interest only loan on their investment property, however, the interest only period is generally only short term. The cash flow of your investments will need to be factored in once you’re required to pay interest and capital repayments.

Generally speaking, SDA investment properties are highly positive cash flow investments.

Tax implications

There are tax implications of all property investment, however, borrowing against the equity in your family home may not be the most tax-effective solution. Generally, it is not possible to claim a tax deduction for borrowing costs when you’ve borrowed against the family home. It’s a good idea to consult with a tax professional and receive tax advice to understand how different types of equity impact your tax liability.

Professional advice

Consider seeking advice from a financial advisor, mortgage broker or property investment specialist who has experience in SDA housing and real estate investment. They can help you navigate the complexities and make informed decisions.

Add an SDA property to your property portfolio with Apollo Investment

Whether you’re investing in National Disability Insurance Scheme (NDIS) property for the first time, or are familiar with investing in NDIS properties, Apollo Investment can help you work through your options for financing an SDA home investment loan.

Talk with us about whether using the available equity in your home or another investment property may be a viable option for your NDIS housing investment objectives.