Following on from our Lazy Money Trivia post, we wanted to run through the following to help you understand the concept of “Lazy Money”.
Throughout this article, we will help to answer the following questions:
- What is “lazy” money?
- Do you have it?
- How can it change your financial future?
- How can you use it to your advantage? and
- Is it right for you?
Before addressing these areas, let’s reveal the results of the social media trivia. Surprisingly, it was 50/50, with 50% of our audience perceiving Lazy Money as their savings.
When you think about it, sure, it seems logical for savings to be “lazy” money. And, with the Finance industry regularly using this term to describe money with a low ROI (return on investment), it’s no wonder people are confused.
So, from a property investing perspective, what is Lazy Money?
Continue reading, and you’ll find out.
Lazy Money – What is it?
In relation to property investing, Lazy Money is a common term used to describe the available equity in your home.
But why is it lazy?
We consider this money to be “lazy” because although it has reduced the amount outstanding on your loan, it is not working hardest for you. Instead, this money could be put towards another investment to receive greater and more significant returns.
And, equity? What’s that?
Simply, equity (Lazy Money) relates to the difference between the value of your home—and how much you owe on it. For example, your home is currently valued at $600,000 but you still owe $350,000 on the loan.
The amount of Lazy Money you have is $250,000. Remember that’s$250,000 just sitting there, doing nothing to improve your financial future or wealth goals. Talk about lazy…
And given you need a substantial amount of savings to purchase a house these days, regardless of whether it’s to live in or as an investment, you could have this lazy money working much harder for you.
To provide some context, here’s how two of our clients in Perth bought two investment properties using their lazy money as a foundation.
This couple came to us with a property paid off in Yangebupand had been focused on putting the rest of their money into Superannuation. Despite their efforts, they soon learned that their Superannuation would be insufficient for their retirement goals. For them, this was a wake-up call to start taking action.
After attending a with their Client Manager, they discovered that they had access to $241,000 of lazy money in their current home. Since then, they have used $160,713 of this lazy money to purchase two investment properties, with a combined value of $841,400! And, these properties only cost them $85.80 per week to hold!
So… they used $160,713 of lazy money (the equity in their house) as deposits for two new investment properties. Isn’t that amazing!
If you already have a property and are likely to be a significant amount of equity available (like our clients above) you’ll need less cash in the bank for a property deposit (as a result of leveraging your Lazy Money).
For those not in the property market yet, you may not have access to this Lazy Money just yet. However, if you’re wanting to learn more about property investing, ensure to check out our article on “10 Important Tips to Be a Successful Investor.” You’ll find the content within this article very useful.
Lazy money – Do you have it?
The first step to determining whether you have any Lazy Money is to get a current valuation of your existing property(s). This can help to determine whether the value of your house(s) have gone up.
Even if your property(s) have only gone up by 5% since their last valuation, this could significantly increase your borrowing capacity and is definitely worth investigating.
Just keep in mind that your abilityto access this lazy money can depend on a few factors, including:
- Your Income
- Your current living expenses
- How many dependents you have
- How much debt you have
- The terms of any existing loan/mortgages
Is it right for you?
Although using LazyMoney for your next property’s deposit can provide you with a shortcut into the market, it may not be right for everyone.
Truth be told, some of you may not be able to afford this. This is because any additional loan repayments minus your potential rental income could exceed your current cash flow, meaning that you are living beyond your means. This is not advised.
There may also be restrictions on your home loan that can prevent you from making additional repayments or accessing the equity in your home.
However, the complete opposite is possible when investing in property that is either positively geared (producing positive cash on a weekly basis) or neutrally geared (costs you very little per week to service and is well within your current capabilities). Either of these approaches as part of a bigger strategic wealth plan can drastically increase your net worth over a 10-15 year period.
If you don’t have access to any LazyMoney, you could look into another investment strategy called Rentvesting. If you don’t know much about this strategy, take a look at this article: “The Advantages of Rentvesting.”
Where to from here?
Your first step will be to review your current situation and finances. Discover whether you have access to any “lazy” money and consider whether you could use this money as part of your overall investment strategy.
If don’t know how to do this yourself or would like some assistance in developing a Strategic Wealth Plan to achieve your financial goals, our Client Managers can help you. They can help to identify whether:
- You have any lazy money in your property(s)
- Using this lazy money to fund your next investment suits your situation and goals
If you are interested in developing a Strategic Wealth Plan, we can offer you a one-hour Planning & Strategy Session (valued at $295).
Yours for free if you register now.
You will:
- Get a clear idea of your current situation and how you’re tracking financially
- Find out what you need to start doing now to reach your financial goals
- Gain insight into investment opportunities and/or strategies that are best suited to your personal circ*mstances
Register here to take one step closer to living the life you want.
As an expert in personal finance, particularly in the realm of property investing, I can confidently address the concepts discussed in the article about "Lazy Money." The term is often associated with the available equity in one's home and its potential impact on financial strategies.
Lazy Money - What is it?
Lazy Money, within the context of property investing, refers to the equity in your home that is not actively working to generate returns. The article correctly points out that this money, although reducing the outstanding loan amount, could be utilized more effectively for greater and more significant returns through other investments.
The concept of equity is explained as the difference between the current value of your home and the outstanding mortgage amount. For instance, if your home is valued at $600,000, and you owe $350,000 on the loan, the Lazy Money or equity is $250,000.
The article emphasizes that this money, if left unused, is essentially 'lazy' as it does not contribute to improving one's financial future or wealth goals.
Real-life Example
The article provides a compelling real-life example of a couple who discovered $241,000 of Lazy Money in their paid-off property. They used $160,713 of this money as deposits for two investment properties with a combined value of $841,400. This showcases how leveraging Lazy Money can be a powerful strategy to enter the property market with less cash in hand.
Determining if You Have Lazy Money
To determine if you have Lazy Money, the article suggests getting a current valuation of your property to see if its value has increased. The ability to access this money depends on factors such as income, living expenses, dependents, existing debt, and loan terms.
Is it Right for You?
The article wisely cautions that using Lazy Money may not be suitable for everyone. Factors like income, expenses, and loan restrictions can impact the feasibility of leveraging Lazy Money. It also introduces the concept of Rentvesting as an alternative investment strategy for those without access to Lazy Money.
Where to from Here?
The article guides readers on the next steps, advising them to review their current financial situation and assess the potential of their Lazy Money. It also offers a one-hour Planning & Strategy Session to help individuals develop a Strategic Wealth Plan tailored to their goals.
In summary, the article effectively explains the concept of Lazy Money, provides real-world examples, and offers practical advice for readers to assess and potentially leverage their Lazy Money for property investment.
