Jump to content


Equity


  • Please log in to reply
9 replies to this topic

#1 Guest_Windsor_Guest

Guest_Windsor_Guest
  • Guests

Posted 08 July 2013 - 09:27 AM

Prompted by lots of reading of a property investment forum I know at least two other I-do ladies are on. Don't want to post on there though as everyone seems so clever and it really is a n00b question...


I assume we'll have some equity in our home once it is finished being built. We made a fair bit on our last place (and in hindsight shouldn't have sold it but were unsure about my employment prospects when we moved interstate) so we haven't had to borrow the full amount for our build.

How do you go about using your equity to act as a deposit for an investment property?

Can you only take out up to 80% of your house's value?

Is it a better idea to just save up a deposit for an IP in an offset account so you're paying 'real' cash rather than dipping into the loan for your own home?

Anyone doing this at the moment? Experiences?

#2 greenwich

greenwich

    Centurion

  • avid user
  • PipPipPipPipPip
  • 1,287 posts

Posted 08 July 2013 - 10:30 AM

You can borrow as much as the bank are willing to lend you (and you feel comfortable borrowing) on your property/ies. However if your loan to value ratio (LVR) is more than 80% the bank will charge you mortgage insurance.

To use the equity in your home you simply apply to the bank to borrow more money using your home as security.

For example using made up numbers: say you have a $1M home with a $500k mortgage (50% LVR), you can then apply to the bank to borrow another 30% of the property's value ($300k). This leaves you with an 80% LVR thus avoiding mortgage insurance. This $300k is then used as a deposit on the investment property and you borrow the remaining amount to fund the purchase of the investment property using the investment property as security.

You could also save up a deposit for an investment property and borrow the remaining amount using the investment property as security. One of the advantages of borrowing the deposit and remaining purchase price is that the interest on borrowings for investments is tax deductible - so you would need to calculate which portion is used for the IP and which is for your Home (easiest way is 2 separate loan accounts they just have the same property - your home - being used as security). However you will have higher loan repayments to make if you borrow 100% for your IP. How you fund it and what you buy all comes down to your risk profile as an investor and how much debt you can handle and still sleep at night.

In terms of accessing equity in your property you don't have to use the borrowed funds for another property, you could use it to buy shares or other investments or even other non-investment spending (again, subject to your bank).

I hope that helps. Happy IP hunting!



<a href="http://lilypie.com/"><img src="http://lb2f.lilypie....om/rPkmp10.png" width="400" height="80" border="0" alt="Lilypie Second Birthday tickers" /></a>


<a href="http://lilypie.com/"><img src="http://lb3f.lilypie....om/cSUgp10.png" width="400" height="80" border="0" alt="Lilypie Third Birthday tickers" /></a>

#3 flowerrose

flowerrose

    Part of the Furniture

  • ForumAddict
  • PipPipPipPipPipPipPip
  • 3,283 posts

Posted 08 July 2013 - 12:43 PM

As PP says, it is better to stack the debt on the IP to get the most tax benefits. I'd talk to your bank and see what options suit best. We have two properties; our home and a rental in a nearby suburb. We have kept all of the equity in our home and are fully mortgaged on our IP. Even though our investment loan is 100% we have negated the risk for the banks by allowing a small charge over our home, where the equity lies, so we get a competitive rate and avoid costly insurance.

I hope this makes sense. I haven't had a coffee yet.

#4 beachgurl

beachgurl

    Part of the Furniture

  • avid user
  • PipPipPipPipPipPipPip
  • 3,530 posts

Posted 08 July 2013 - 11:37 PM

We started our investing by pulling out the equity we had in our home plus the equity in the property I lived in prior to us getting together. Back then you could 95% out. Then we went on a little auction spree. We could've stayed at 80% but the extra equity pulled out was enough to use as a deposit for an additional property.

As Greenwich said, it depends on the level of risk you wish to take. If your longer term plan is to buy more then one property, you may want to take us much equity as you can. We bought a few cheaper properties to spread the risk and increase the rental yield.

Also depends on what sort of property you want to invest in. It sounds like you have made good choices so far with making quick equity. If that is the plan again, such as buying something rundown where a cosmetic renovation can make some quick equity, I'd go up to 90%. But if it is a set and forget type investment, I'd go with an 80% lend. A few Oz markets are at their peak so unless you have a manufactured growth plan, you wouldn't expect to make much over the next few years. With the doom and gloomers saying that there will be a downturn in the next few years you don't want to place yourself in a negative equity position.

As for the other forum, newbies are very welcome. If it's a topic that's been thrashed about a lot, generally a few of the oldies will post links to those threads. The search function is quite crap but don't feel shy to ask. there are some absolutely lovely people on there who don't beat their chests about their incredible wealth and are the first to help out those starting out.

#5 bluenomi

bluenomi

    Part of the Furniture

  • avid user
  • PipPipPipPipPipPipPip
  • 3,185 posts

Posted 09 July 2013 - 12:32 PM

The others have covered equity but don't assume you'll have much. It's really easy when building to end up with a house that cost more than it's worth (especially if you've done lots of upgrades). BIL went so over the top with his that it cost him $80k more than it was valued at. He had to sell recently and just came out ahead but barely.
<a href="http://lilypie.com/"><img src="http://lb1f.lilypie....om/zInJp11.png" width="400" height="80" border="0" alt="Lilypie First Birthday tickers" /></a>

#6 Guest_Windsor_Guest

Guest_Windsor_Guest
  • Guests

Posted 09 July 2013 - 01:15 PM

BG, they are pretty nice over there but I have noticed that the first thing they ask newbies is 'what's your plan?' and we're not really at that stage yet. In 6mths when the build is done and I can pick up some casual teaching with MIL babysiitting we'll be in a position to act.

Our last purchase was a foreclosure auction of 4 townhouses where only 2 bidders turned up on the day. Sold 2 years later for 50k more but had also paid a good chunk off as the loan was less than we were expecting to borrow. Not sure we'd swing that again anytime soon!

Bluenomi, as Daryl Kerrigan says (and I repeat to DH all the time) "You can overcapitalise" wink.gif but I think we've been pretty conservative.

#7 beachgurl

beachgurl

    Part of the Furniture

  • avid user
  • PipPipPipPipPipPipPip
  • 3,530 posts

Posted 09 July 2013 - 05:17 PM

You sound like me Windsor with your spending on a build. We completed ours Christmas 2011 and just sold for a 95k profit.

I remember those days of just turning up to auctions to snag a bargain. I agree it's a long way from that now. It's all about creative buying now.

#8 bluenomi

bluenomi

    Part of the Furniture

  • avid user
  • PipPipPipPipPipPipPip
  • 3,185 posts

Posted 09 July 2013 - 06:17 PM

QUOTE(Windsor @ Jul 9 2013, 01:15 PM) View Post



Bluenomi, as Daryl Kerrigan says (and I repeat to DH all the time) "You can overcapitalise" wink.gif but I think we've been pretty conservative.


Ahh so you're smart then tongue.gif BIL, not so much. Got sucked in by the $150 light switches that glow blue rolleyes.gif
<a href="http://lilypie.com/"><img src="http://lb1f.lilypie....om/zInJp11.png" width="400" height="80" border="0" alt="Lilypie First Birthday tickers" /></a>

#9 goodgirl

goodgirl

    A grand adventure is about to begin...

  • avid user
  • PipPipPipPipPipPipPip
  • 4,280 posts

Posted 10 July 2013 - 03:06 PM

Which property investment forum are you on? My DH needs a forum like that.

 <a href="http://lilypie.com/"><imgsrc="http://lb1f.lilypie.com/UMtzp11.png" width="400" height="80" border="0" alt="Lilypie First Birthday tickers" /></a>

<a href="http://lilypie.com/"><imgsrc="http://lpmf.lilypie.com/2Avip11.png" width="400" height="80" border="0" alt="Lilypie Premature Baby tickers" /></a>

#10 Guest_Windsor_Guest

Guest_Windsor_Guest
  • Guests

Posted 10 July 2013 - 10:08 PM

http://somersoft.com/forums/

I started reading because the comments people made about their tenants and weird property management situations were good for procrastinating at work...




0 user(s) are reading this topic

0 members, 0 guests, 0 anonymous users