Using equity! Is this how it works??

Karl and Rita

You’ve got the concept right, but…

If your property is valued at $125K, you’ll find a bank only willing to lend you 80% (or 90% with MI), or $100K.

So you’d have PPOR loan of $74K and an investment loan of $26K secured against your PPOR, PLUS you would then have the new loan secured against your IP.

You need to keep the PPOR and investment loans separate for taxation reasons.

Cheers
Mel

Hi Karl and Rita,

You are on the right track but with a couple of clarifying points.

Assuming the bank recognises th evalue of your property is $125K they will allow you to lend up to 80% of this ($100K) less your existing loan ($74K). As such you have $26K of equity you can use towards the deposit and costs on other property.

Assume you find a property for $100K you find a lender who will provide an 80% loan ($80K) with the balance $26K (assuming $6K loan/purchase costs) from your line of credit.

Under this set up you will have three loans. One for $74K on your own home, another for $26 being the line of credit and the third for $80K being the investment property.

In each instance you can go beyond 80% if you were prepared to pay Loan Mortgage Insurance and if the LMI providers were prepared to accept your locality as suitable security.

Derek
[email protected]

Property Investment Support Available. Ongoing and never stopping. PM welcome.

Sorry Derek[biggrin]. One good thing from school.

Karl and Rita, the $26K would/should be a separate loan to your PPOR loan, but secured by your PPOR.

So for tax purposes, it is an investment loan. If it’s used to buy the investment property, you’ll count it in your borrowings for it at tax time.

Cheers
Mel

$100k investments is what I find for people. Maybe Derek for finacial advice and me as the spotter?

DD

Don’t sweat the small stuff,and it’s all small stuff!!

Karl and Rita :o)

You wrote:

“We bought out home for $93,000. The value is $125,000, but the loan is only for $74,000 (80% of sale price, so as far as the bank is concerned the value is $93,000). Anyway, we could have about $50,000 equity in our home.”

If you say that the Bank has valued your home at 93k, then, for all intents and purposes, your house is worth 93k. Unless you take your loan elsewhere, you need to consider the value the bank put on your house- not the value you *think* your place is worth. Sorry to be the bearer of bad perspectives, but in this case oyu have suggested, you have no real equity except for the 20% deposit.

A note to Derek.. Derek, you said:

“my sole purpose on this forum is to share information.”

Derek, I think you’re a lovely guy, but I do remember you said on this Forum that you wished to mentor people- and to charge people money for that mentoring. If that is still the case, then you have an additional purpose to merely “sharing information”. I think you give great advice, and as I said, you’re a lovely man, but I also think people need to be open with any (financial) agenda they have.

kay henry

Hi Kay,

Yep that comment was made in response to a question about ‘business ideas etc’ someone asked some time ago and was highly relevant to the discussion thread. Others shared their thoughts and I shared mine but…….

I emphasise the comments in that thread were strictly a series of my ideas at the time and there is a long way to go before that idea even reaches fruition. But rest assured my ‘pig headedness’ will get it up and running one day.

Bloody work keeps getting in the road [biggrin]

Derek
[email protected]

Property Investment Support Available. Ongoing and never stopping. PM welcome.

Sorry to jump into this one folks but I’m now a little concerned that perhaps I’ve misunderstood our situation. (thank god we haven’t moved forward yet)

we have an existing line of credit of around $25000, of which we have used around $12000. As our PPOR was last valued at around $150000 i take it that we have un-tapped equity of $95000 (150000×80%- 25000) plus $13000 available on line of credit. Let me know if i’ve got it wrong!!

By applying some of the existing line of credit to deposits on IP’s we can claim that portion of interest bill on line of credit on tax. Right???

If we were to extend our line of credit to say max ($120000) would that be a better option than seeking a “new” finance package?

Much appreciate feedback

Ray

To begin and not succeed is not to fail
To never try is to fail

Thanks Derek

All much clearer and more comfortable. Trick now is to find relevant IP’s. Would you suggest having full extent of LOC available before searching or extend LOC once we’ve begun the journey?

Ray

To begin and not succeed is not to fail
To never try is to fail

Thanks Steven

Ray

To begin and not succeed is not to fail
To never try is to fail