Is it time to release equity and be prepared to invest?

There are moments in market cycles when the wisest move is not buying or selling, but positioning yourself so you can act fast when others can't.

Right now, it feels like one of those moments has been brewing over the last six months.

Like all assets, property values across much of Australia have risen strongly over the past few years. Many households are sitting on much stronger equity positions without knowing that equity is only helpful if they access it.

But accessing it first requires financial means, which depends on whether they have the income to support further lending and the equity available to release.

Recently, we have seen an uptick in our seasoned investor clients asking, given that many investment markets are currently hovering at all-time highs and we are in an even stronger equity position: "Should we release that equity now, build a bigger cash buffer, but ultimately have cash ready to invest if markets change?"

To add some context, for simplicity's sake, let's say a client has a property worth $2m and a $1m loan. They could release up to 80% of $2m, or $1.6m, assuming they have income to support it.

At the moment, that is around 5x income, so in this case $300,000+.

In scenarios like this, the $600,000 in cash released would sit in an offset account against a new $600,000 investment loan, and they could decide to invest further now or leave it available for "future" investing. There is no interest cost as the loan is fully offset.

The mistake most people make is assuming they can and will have the time to release equity when they want to pull the trigger on an investment.

When the opposite is true.

The smartest time to release equity is when you can, and to regularly review your ability to do so.

Investment windows can open quickly and unexpectedly when prices move downward fast, and once they do, it's often too late and too slow to release equity to take advantage of it.

It can sometimes take 2-8 weeks to release cash, and depending on the correction, it can be too long to capitalise on market repricing moments, with prices already beginning to rebound.

This is why the most seasoned investors constantly restructure their loans, increase cash buffers at every opportunity, reduce payment obligations, reconsider their investments, and look to maximise different investment strategies such as superannuation.

So if you're in this position, it may be time to book a structuring chat with your broker to consider whether being better prepared is worth it, while also considering investing now.