Hi guys,
This is my first post and may come across as rather…simple. So I apologise to begin with if the questions are a little beneath most of your capabilities. I do however thank you for your time.
I have my own property (inner city Brisbane apartment) which I live in. I have made a few improvements to it as well as buying not too late in the boom. I therefore after valuation have about 50-70k in equity.
I visited my mortgage broker that I used to purchase the property originally to see how I could use this extra equity and what value investment property I could put it toward. After that meeting I have a few questions:
1. If I use the equity from my current property as a deposit on an investment property, the loan on MY home apparently increases (by the amount of equity I pull out) to cover the equity AS WELL as having to pay the IP loan? Now correct me if i’m wrong, but finding + geared property is hard enough without having to cover 2 loans for 1 property? Am I missing something here?
2. If that is the case…every IP property that you buy using equity from a previous property is going to have 2 loans associated with it?
3. I’m looking at buying another apartment in the same block as the one I live in. I however had all kinds of difficulties securing the finance for mine due to the whole “inner city” and LVR debacle (banks wanting high %deposits for inner city property and “smaller property”). Is there any ways around this?Thanks again for your time and any answers are much appreciated.
Rgds
Richardhi MrTrader
You have two problems here one is easy the other is a little more difficult.
1. The broker hasn’t got a clue talk to another broker ( post (broker wanted) and you will get at least 6 here and they will give you the right answer with a better rate probably).
2. Equity is exactly that there is no cost or interest on equity ( if there was I would be broke and liquidated)
I won’t say syndicate because I’m not supposed to
but most of them work on equity it is very valuable and most banks require this to get a deal across the line.
How can you charge a interest on equity when the bank/lender is not lending on ithere to help
Hi Grossrealisation,
Thanks for your answer. Well that’s what I thought BEFORE I went and saw the broker.
I thought that if someone had equity built up either through repayments or increased valuation, then that was there’s to draw out without having to pay back?
So basically if I have roughly 50K equity in my current home, I can use that as a deposit on another property? And I will only have the cost of the IP loan to cover?
Thanks again!
hi MrTrader
50k can be used as equity on an ip.
This is usually to get higher lend.
Have a look at investing using just this equidity.
50k in a little low but there are groups out there ours isn’t one of them.here to help
The place in my building would only go for around 200K (small 1 bedder) but could rent at probably $250/week.
If I use my 50K as a deposit, that would be 25% of total sale which should be ok for lending mobs shouldn’t it?
Thanks!
Perfect.
It means an 80% loan which will save you on fees plus some cash for the buying costs.
You will have a deductible loan against the IP and the $50K from your home loan will also now be deductible.
Ensure your broker sets it up so that the home loan has two splits one for each loan. This will make your accountants life easier plus you can pay them down at different rates ie non deductible first.
Cheers,
Simon Macks
Residential and Commercial Finance Broker[email protected]
0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
Hello Mortgage Hunter,
Thanks for your reply.
This is where I get confused however…the 50K that I withdraw (seemingly from thin air – ie. an increased valuation of my property)… do I repay this to the lender AS WELL as the other 150K I would have on loan for the IP???
Here is my story in brief:
MY PROPERTY:
purchase: 155K
loan: 139K
outstanding loan 135K
value of property now: 185-200K
Seeming Equity: 50-65KSo while I have repayments for the 150K on the IP, do I also have repayments on the 50K added to my home loan AS WELL???
Cheers
Yes you do.
But even tho it is secured by your home loan try to see it as part of your IP loan.
So you have bought an IP by borrowing the whole price plus the costs.
That loan is split accross two security properties but the total loan for the IP is tax deductible.
Plus I would recommend that the IP loan is IO (interest only). This means that you will be paying down your home loan with as much funds as you choose to allocate whilst still maintaing the deductible loan.
Does this all make sense? There is a lot to learn and many of us in here forget that we too once struggled with these concepts.
Cheers,
Simon Macks
Residential and Commercial Finance Broker[email protected]
0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
Thank you Mortgage Hunter.
Yes I understand now. Sorry just confused me a bit when Grossrealisation said “Equity is exactly that there is no cost or interest on equity”.
I interpreted that as “no repayments on equity”So overall, it’s a matter of serviceability and if you want to be +geared, then finding a property that covers (rents out) the ENTIRE loan?
Which brings me to another problem? How the heck do you do that with prices the way they are these days? I can find apartments in my area whose yield covers the loan repayments but then throw on top of that body corp and other costs, and it blows out and turns into -geared (which I don’t want)
Can you find a house that is doing the same?
Growth has slowed at the moment so you need to be extra selective. Not like a few years back where you bought anything at asking price confident that a profit was around the corner.
Research your market and the bargains will appear. Have finance ready so you can move quickly.
All the best,
Simon Macks
Residential and Commercial Finance Broker[email protected]
0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
hi MrTrader
Sorry to confuse you and mortgage hunter is correct some times we forget we are not all at the same level.
My suggestion is to talk to a local broker that does (a) deal in real estate as an investor and (b) is a little switched on ( second is a little harder to find)
As for the property don’t get attached to it there are properties all over the place its the grain and the straw you have to work thru to find the one for you.
Even thou a couple of people here don’t like real estates agents ( im not one) they are also a very good group to explain this to you. sit down and they may give you a few ideas just don’t sign anythinghere to help
I am a bit confused about the equity access to acquire a new IP now.
Based from the example from MyTrader:
MY PROPERTY:
purchase: 155K (PPOR)
loan: 139K (NAME of BANK = BANK A)
outstanding loan 135K
value of property now: 200K
Seeming Equity: 65KSo, say I get the property in 2000, with the price of 155k. The value now is 200k. The outstanding loan now has been decrease to 135k (I BORROW THE MONEY WITH BANK A). Thus, I have an equity of 65k.
I decided to buy a new IP for 250k, and I want to use my equity of 65k, so my loan for the IP property is 185k (I BORROW THE MONEY WITH BANK B)
My question is if I buy a new IP, using “equity access”. How much is my loan from BANK A now ? Is that:
a. still 135k or
b. has been increase to 200k (because I use the equity of 65k) ??What about with BANK B now ?? How much money do I owe ?? Is that:
a. 185k
b. any other amount ?Thank’s in advance
Hi Leo777,
From my understanding through MortgageHunter and grossrealisation here and talking to my broker again, you will be servicing the ENTIRE debt.
So in your equation below (in theory), BANK A’s loan will increase to 200K and BANK B’s loan will be 185k.The 65k equity you drew out and the new 185k loan should be interest only and is deductible.
In saying that, my broker has also said that not all of your equity is accessible…only 80-90% of the new value of your property (90% if you want to pay mortgage insurance on both loans!) Guys, can you clarify that???
Cheers
RichardHi leo,
The following may help, keep in mind the amount of equity you access will depend on the LVR, 95% 90% 80% etc.Current property Value $200K
Current balance $135KEquity available at 80% LVR = $160K less current balance of $135K = $25K available as a deposit on new IP.
Loan 1 with Lender XYZ, PPR used as security for this loan.
Split A $135K non deductible debt (PPR loan)
Split B $25K deductible debt (investment loan)Loan 2 With ABC lender, IP used as security for this loan.
Purchase $200K
Loan Amount $175K (the remaining $25K is from loan 1 split
So now the Two loans would be:
Loan 1 $160K
Loan 2 $175KI hope this helps, Cheers.
Regards
Steven
Mortgage BrokerMobile Mortgage Market
Ph: 0402 483 216
[email protected]
http://www.mobilemortgagemarket.com.auPLEASE note comments made should not be taken as specific taxation, financial, legal or investment advice.
Sorry to butt in here, but as one L Plater to another I think I understand your confusion. Your property has increased in value and so that money is yours. You still owe the bank $135K.
You have 2 ways of accessing your money/equity
1. Sell property, pay out loan, put $50/$65K in your bank account and do with it whatever you want. (as well as find somewhere else to live !)2. Go to bank, ask them to lend you another $50K, which they will charge you $3,500 interest pa (approx) for. You then put that money in your bank account and do whatever you want to do with it.
If you use the $50K to buy a new car, go on a holiday or whatever then the $3,500 interest is not tax deductible.
If you use the money as a deposit for an income producing IP or use it to buy shares or some other income producing investment then the interest of $3,500 is tax deductible.
In either case under option 2 you have borrowed $50,000 of “your” money from the bank and eventually have to pay it back, whether that is in 5/10/30 years time , if in 30 years then maybe the $50K will be the price of a Big Mac. ie sell your property for $1m, pay back the $185K to the bank and put the rest in your own account.
As I said at the beginning I too am an L Plater, but the mortgage brokers, accountants and other professionals in this forum are great and are here to help, not rip you off.
regards,
Paul
Originally posted by MrTrader:Hello Mortgage Hunter,
Thanks for your reply.
This is where I get confused however…the 50K that I withdraw (seemingly from thin air – ie. an increased valuation of my property)… do I repay this to the lender AS WELL as the other 150K I would have on loan for the IP???
Here is my story in brief:
MY PROPERTY:
purchase: 155K
loan: 139K
outstanding loan 135K
value of property now: 185-200K
Seeming Equity: 50-65KSo while I have repayments for the 150K on the IP, do I also have repayments on the 50K added to my home loan AS WELL???
Cheers
Hi guys, this is a topic I have been toying with lately too. I understand how to access equity, through refinancing, or redrawing accessable equity, or selling. But was wondering if there is a bank/broker etc who has used encumberance as a form of utilising equity? I hate the thought of watching my own mortgage increase. I think perhaps this is what is meant by a split loan- grateful clarification?
Can you explain what you meaning by using encumbrances?
Ta,
Simon Macks
Residential and Commercial Finance Broker[email protected]
0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
I think I have somewhat figured it out…
What I meant by encumberance was the bank’s ownership of a property. What I have established from other posts with reference to a split loan :
Property A: Value $300K, loan = $210, equity with 80% lvr = $30K
Goal – to purchase IP price = $150K
therefore would apply for a split loan which would involve refinancing property A to access equity & creating a $30K / $120K split….Therefore would have 2 loans One split into 210K, & 30K (with Property A encummbered) and one loan of 120K (with new property encummbered)
or something to that degree- it is a lot harder to put into words…You are on the right track there. The use of splits is vital to reduce tax complications.
I would make the new loan IO and the IP split as well.
Focus on building equity in the offset rather than paying down any loans.
Cheers,
Simon Macks
Residential and Commercial Finance Broker[email protected]
0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
Hi, commenting the answer from MobileMortgage.
Current property Value $200K
Current balance $135KEquity available at 80% LVR = $160K less current balance of $135K = $25K available as a deposit on new IP.
Loan 1 with Lender XYZ, PPR used as security for this loan.
Split A $135K non deductible debt (PPR loan)
Split B $25K deductible debt (investment loan)Loan 2 With ABC lender, IP used as security for this loan.
Purchase $200K
Loan Amount $175K (the remaining $25K is from loan 1 splitSo now the Two loans would be:
Loan 1 $160K
Loan 2 $175KWith Loan 1 (with Lender XYZ), what does it mean by:
Split A $135K non deductible debt (PPR loan)
Split B $25K deductible debt (investment loan).What does it mean by “non deductible debt” and “deductible debt” ?
So, with 25k is fully deductibe (so if my income is $40k p.a., I can claim back the whole 25k, thus my taxable income now is 15k ?)
And is there still any interest of the 25k loan fro Lender ABC ??
Thanks
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