Accessing the equity in your house to buy a franchise

Have you ever wondered about accessing the equity you have in your house to buy a franchise?

It’s quite a popular way for people to fund the purchase of a franchise, but you need to consider the overall position of your finances before you dive into this strategy.

I asked a new client recently, “How do you think you’ll pay for this franchise?”

He said, “Well, we have $60,000 in savings, and we’ll be able to access $100,000 equity we have in our investment property, which means we’ll have to borrow $80,000. So, we’ll be borrowing $80,000”.

What that actually means is that he’ll be borrowing $180,000.

When people talk about accessing the equity they have against their investment properties, it means they will increase their borrowings against the increased value of their property.

There seems to be the notion out there that, “accessing the equity in my property” is somehow ‘free’ money.

That the banks will just give you that money, because the value of your property has increased.

It doesn’t really work that way.

Yes, the banks are happy to give you more money.

But they will lend it against the increased value of your property.

They will treat it like any other loan.

Because it IS a loan.

And it will have interest on it and it will need to be repaid at some point in time.

There’s nothing wrong with this idea.

In fact, it’s pretty clever.

But it’s just important to be clear on what’s actually happening.

When you access additional equity in property it means you’re increasing your debt.

And this means the banks will assess your ability to service the overall debt.

Which means you might not get as much as you thought you could.

This could impact the amount you have available to buy the business and fund the initial working capital.

Let me know if you need a hand, or have any questions.