LVR vs. Available Equity: How to Unlock Your Property’s Hidden Potential

This video provides clear explanations and practical examples to help you understand the relationship between LVR and available equity. Robbie breaks down the jargon and guides you through the calculations, empowering you to make informed decisions about your property investments.

Understanding LVR & Equity

In this video, Robbie, Founder and CEO of Axon Property Group, dives into two key concepts every savvy property investor should understand: Loan-to-Value Ratio (LVR) and Available Equity.

Robbie explains that once you’ve owned a property for some time and it has increased in value, you begin to build equity. However, it’s important to distinguish between total equity and usable (or available) equity. While total equity is simply the difference between your property’s value and your outstanding loan, usable equity is the portion you can actually access, typically up to 90% of your property’s value, less the amount you still owe.

Using a simple example, Robbie shows how understanding these numbers can empower you to use your equity as a deposit for another property, without dipping into your own cash. This strategy is fundamental to growing a successful portfolio, especially for ADF members looking to maximise their financial future.

Want to learn how to grow your property portfolio the smart way?

Video Transcript

Hey, let’s go further down the rabbit hole as far as some of the jargon that goes with being a really smart property investor and homeowner – LVR, which is Loan-to-Value Ratio, and available equity.

So now we’re not talking about getting started with a property. Your property has been operating for a while. You’ve had it in the market for a period of time, and it’s gone up in value. And there’s this little fancy thing called equity, which is now in the property. There are two types of equity, though, and I want to go through with it now. So you have a vital understanding of the differences between the two.

Now we’ve got our $500,000 property with our $400,000 loan. If we’re talking about Loan-to-Value Ratio, this is all about the ratio or percentage of a loan relative to the value of the property, right? So how do we work that out? The formula is: the loan divided by the value times by 100, is your Loan-to-Value Ratio.

So the example is: $400,000 divided by $500,000 times 100 means that your Loan-to-Value Ratio on this particular property is 80%.

Right? But then when we start talking about equity, have a look at how this rolls into it. Now we’ve got this trusty $500,000 property. Say it’s only got a $320,000 loan, which means you would have bought it quite a while ago, right? You might have been sort of slugging away at your mortgage there, or you bought a $400,000 property, only had a $320,000 loan. Property’s now gone up to $500,000. This has happened to heaps of our clients.

So the total equity, of course, that we have is the difference between how much the property’s worth and how much you owe, and as you can see, that’s $180,000. That’s total equity.

Many people come to us and go, “Hey, I’ve got $180,000 of equity in my property.” I’m like, yeah, that’s total equity, but that’s not the usable or available equity. Let’s have a look at what that turns out to be.

The majority of banks, in fact, all banks, when you are trying to access equity, will place a Loan-to-Value Ratio limit on that property. And in almost all circumstances, it’ll be 90% of the property’s value.

So we know that 90% line will basically be $450,000. Therefore, there is a $50,000 security that the banks place in there that you cannot get access to. You can see there’s effectively, I put a little red hat on the house, right? So the property’s worth $500,000. You only get access to $450,000.

Therefore, there’s this space in the middle called available equity or usable equity. You can use those terms interchangeably. That’s where you’ve got $130,000 of equity that you can use as your deposit and costs to go and buy another property.

That’s how you can get access to your equity. It can make a massive difference.

Now, here’s the real kicker. As long as you can borrow the right amount of money and you can grab equity from a property to go and grow your portfolio, as per what you’ve seen during our educational videos, you don’t need any of your own cash. This is the smartest way to do it.