Hi everyone.
I am new to this forum and perhaps to property investing.I am trying to calculate my ” initial cash needed” in my calculations however I dont know what to put.
The thing is, I have paid off my house fully. And I can redraw equity from the property.So if say I am looking to purchase a property for 300k. what would my initial cash input be? how then do I calculate my Cash on cash return??!?!
Thanks guys.
See you all at the top one day.
Jindou
[email protected][tongue]As a suggestion, the money you redraw will be your cash down.
Hi Jindou,
The good thing about “numbers” is that you can get them to say anything you want them to.
You could argue that if you are redrawing on available equity in property A to buy property B, then “your” cash on cash return could be zero (because you borrowed the lot and paid in full).
Or it could be inifinty (because you borrowed the lot and therefore it is not technically yours, so your actual input was nil).
A suggestion would be use your available equity to pay for 20% of purchase price, plus costs – stamp duty, fees, blah, blah.
Therefore, with your $300K purchase price example, you could use $60 K (20% of 300 K = 60 ) plus approx 15K costs = $75 K in total, taken from your available equity.
Then you could go back to your bank, or any other bank, and borrow the remaining $240K (300 – 60 = 240) .
Therefore, you have only used $75 K of available equity in your “fully paid off house”, and also therefore still presumably have quite a bit left over.
So – with your new $ 300 K property, in reality you have actually borrowed 100% of purchase price and costs as well. But on paper, your new $300 K property has a loan associated with it of only $240 K – ie 80%.
I hope this helps,
BDM
Property + Music : what else is there ?
http://www.mattsmusic.com.au
http://www.rivertothesea.com
http://home.iprimus.com.au/mattandrobyn/index.htmHi Jindou,
Set yourself up with a line of credit/equity loan and use these funds for deposit andpurchasing costs.
Typically the deposit is 20% of purchasing cost and you need to allow around 5%-6% for purchase costs.
You can also use smaller deposits than 20% depending upon the type, location and nature of the property. This strategy will see you incur lenders mortgage insurance but this does preserve your available equity and allows for greater leveraging.
Not that I am a big user of CCOR however I would imagine in the example given of a $300K property that a total loan of $315K would suffice for calaculaion purposes.
Derek
[email protected]
http://www.pis.theinvestorsclub.com.au
0409 882 958Thank you gurus.
I have found quite a few places that lend themselves to the 11 second rule (McKnight). But the catch is that I have to rent each room out individually.
Is that a good idea? Are there any pitfalls? Any advice? What do property managers charge?
Thank you guys.[blush2]
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