Using equity to purchase property’s

Hi Darren,

I am a little lost with your questions..??

If your current property is worth $300k and you owe $200k then your equity is $100k. If you are looking to purchase another property worth $200k then you need $40k as a deposit. You would then borrow the full amount for your new purchase $200k, the bank uses your equity as security over your new purchase. Your position would then be

Bank Assests : $300k + $200k less 20% = $460k
Mortgage : $400k
Equity remaining : $60k

In the above example, if you had $100k in equity you could purchase a property to the value of $500k and use the entire $100k you have in equity ie $500k @ 20% needed for a deposit = $100k. Keep in mind the bank will still look at your ability to service the entire debt.

Hope this helps?

Cheers

Jeff Aquilina

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Hi Darren,

Sorry still don’t follow [hmm] maybe one of the more senior forum ppl could advise.

From what I can see you have $150k in equity. Have you taken into consideration the potential rent that can be used to improve your sercice ability position?

I would suggest you dont use the $90k loan it sounds like a redraw of equity loan, just obtain a loan for 100% of the cost of the new purchase and have the bank use the $150k or at the very least the $90k they have approved as equity. If you have enough equity and can service the new debt you can also borrow 100% + costs and not touch a cent of your own money……I have done this in the past.

If your on msn add me [email protected] and we can discuss some more……

Cheers

Jeff Aquilina

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hi minidaz,
i am doing something similar eg using funds made available by equity in property for investing.

however i intend to only invest in cashflow property so the burden is way less and i can hold over time.

cheerz

[blush2]

Hi Darren

Yes you will have to cover the interest on both investment loans and the home loan. You could possibly do this from rental income (if the yield is high enough) or more likely, from other income (ie negative gear).

If you had the cash, you would have less interest. But from a taxation point of view, if you had the cash, you would be better off paying it into your home loan – non deductible debt.

Terryw
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Hi All,
I have been following this disscusion with great interest as i am new to investments and this type of forum.
I have just brought two IP’S using the equity in my owner occupied place, without having to get a separate deposit loan.
I may have been lucky to get away with this because i was under a certain limit i don’t know.
But my thoughts would be that if you had to get a separate deposit loan you may be aiming to high to soon.

phil

hi all
a couple of things
1.minidaz I think you need to go to a couple of investor meetings to get around the investment debt and personal debt they are not the same by far.
2. have a read of acouple of posts within the last 2 weeks woth regard to deposits and leveraging the question you are asking is how do you leverage from one property to the next and it depends on the structure you are using.
3. that takes me to phillhill21 you must make sure that your stucture is right and that each loan is not cross collateralised which if you have not asked a broker to do so will be as banks love it.
4.I can if required explain leveraging but its alot better if you try and research yourself and go to a investor group in your cap city.
it is not hard to understand when its explained but I haven’t done 1500 word essays since I was at school which was a long time ago
as for you original question I use equity on each and every deal so yes it is used alot and is very common.

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Hi Darren
We have long used equity to build a property portfolio. 3 separate loans to fund an investment property and your own residence make perfect sense. It’s all about “good” debts and “bad” debts.
1) Your home mortgage is a “bad” debt. There are no direct tax incentives except CGT exemption. So pay it off ASAP.
2) Use the equity in your home to negotiate a Line of Credit. Could be interest only. This is a “good” debt as long as you spend it on an appreciating asset. Use this to fund your 20% deposit plus any closing costs to purchase your IP. Interest on this loan is claimable as an expense on the rental income.
3) Get a new mortgage for the balance 80% on the IP. Again, this is a “good” debt and could be interest only as you can claim the expense.

The trick then is to negatively gear the IP and pay off your home as quickly as you can. Once the home is paid off you can start either to reduce the principle on the IP or invest in another as your cash flow improves.
Of course it is even more viable if you can get a positively geared property.
Hope this helps

Cheers
Pyramid

Hi Minidaz,

i think I understand what you are saying.

You wish to access some equity from your PPOR in order to pay the deposit on your investment property and then take out an 80% lend to purchase the investment property.

I am confused as to why you need 3 loans when you only need 2. if you have equity in the PPOR for $90K on a loan of $190K for a property worth $340K then just increase the loan as it will cut down on costs.Therefore paying a repayment on $280K for the PPOR and the 80% of the investment loan.

Your concern is that your repayments for the PPOR will increase. Therefore, meaning that you will be required to outlay additional funds if the investment properties income is not enough to cover the two.

I have thought about this situation too and what I have found is if I make my regular payment on my PPOR then any extra funds remain are put onto the investment property and eventually meaning I will be able to purchase another property with the equity obtained from the investment property and then I have a property that is getting equity as the tenant is paying the mortgage and the new tenant is paying the other mortgage and I am providing additional funds. Another way is any extra funds then you save them to assist when you have enough equity in the investment property.