Guys,I am looking at a property to buy at $110,000 the owner will be happy to get about $90,000 as i had an building and pest inspection done and they let slip what the owner wants for it.There is a lot of interest in the property and i believe with about $10,000 of add value done to it i can get it up to about $140,000,is this worth the trouble, although i can use the new equity of Approx $20,000 to re-invest onto another property.It does currently rent out at $120.00 per week.Also if i get a new valuation of $140,000 after the add value is done can i draw the $20,000 out for other uses.Your Prompt reply will be Appreciated.
Hi Freedom,
Yes, you can use the equity ($20k???) for whatever you want but banks will calculate this loan amount as 80% of the property value minus any debt you have on the property.
You also have to be able to service that debt.I’m not sure how you’ve done your sums, but your equity ($20k???) is the value of the property minus the debt you owe on it.
A simple breakdown for you:
Purchase price = $90k
Deposit @ 10% = $9k
Loan ($81k) + 5% ($4.5k) for purchase costs = $85.5k
Sweat equity = $10k
Revaluation = $140k
Equity = $54.5k ($140k – $85.5k)
Amount bank will lend @ 80% valuation = $26.5kYou should also remember that the interest you pay on the amount you borrow may not be tax deductible depending on it’s purpose.
I’m not sure if you can rely on the pest/building inspector to inform you what the owner wants to get for it unless they are privy to this guarded information.
Also if there’s a lot of interest in the property, you’ll be lucky to get it for such a discount.Hope this helps explain some basic concepts for you.
Have a wonderful day.
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