Hello everyone, not sure what to do now my home is paid off but wouldn't mind some advice from an 'investment' angle.
I live in Malvern Melb and brought my house, a two b/room townhouse way back in 1999 for around $350,000. Suffice to say its easily doubled in value if not more and most similar styled houses have sold for around $700,000 to $800K. I'm lucky I bought just before the boom, thank God, for I sure couldn't affort to buy now.
I've been toying with a few options but not sure which is the best viable option:
1) Stay here for another couple of years. I currently live by myself but have a partner who lives off site. We would like to live together one day but not now. I've rented out the spare room in the past and looking for a new tennant to share the house with.
2) Sell and try to buy 2 smaller properties with one as an investment to rent and the other to live in. Benefits? Weaknesses?
3) Rent out this property and move into a rental myself as I don't have enough capital to buy a sep property. Depends on the cost difference doesn't it?How should I make my money work best for me? Would it be stupid to rent out my house and pay rent somewhere else? I live in a very sought after area although is rental a good idea with the property market moving again?
Oh yes, I'm currently unemployed and have been since April which throws a spanner in the works as I'm living off savings, but I'm certain things will change. This is about longer term planning.
Thanks
James
Hi James,
None of your three options mention staying in the townhouse and using the equity to fund a purchase/s, or do you not want to live in it anymore?
Our IP purchase that is underway at the moment has involved taking out loans to 105% of the purchase price using our current equity as collatoral (thus cross collatoralising and avoiding mortgage insurance) but we are essentialy buying an apartment with no savings down.
Our mortgage should go bye bye end of next year, if everything goes to plan, and we will be using the further unlocked equity to fund purchases of more IPs.
However your last line about being unemployed could be a sticking point on the accessing equity front as the banks will initially look at your ability to service a loan if un-tenanted…
Glennsa
p.s. Congrats on paying out your mortgage too btw!!!
Certainly you dont need to cross collateralise the securities to be able to borrow 100% + of the purchase price of any new property and it is a strategy we would rarily recommend.
Given the equity you have in your current property and as long as you feel you can service any new borrowing then using your own equity opens up a number of doors to either purchase a new investment property or another PPOR.
In saying this remember that interest on a new PPOR will not be Tax deductible so you will need to service the entire debt from after tax dollars.
Richard Taylor | Australia's leading private lender
Thanks guys for your comments.
Firstly, I'm not overly savy about these areas and don't know much about using the equity of one's house to secure finance although I know you can do it. Can either of you elaborate about how this works in simple language for me? I gather I use the equity of my home to offset against a loan?
I plan on staying here for only 5 more years max as I'd like something different with more storage room, a garden etc and also plan to buy something with my partner perhaps.
1. re ;'thus cross collatoralising and avoiding mortgage insurance'. How does this work?
2. What is PPOR?James
Qlds007 wrote:Certainly you dont need to cross collateralise the securities to be able to borrow 100% + of the purchase price of any new property and it is a strategy we would rarily recommend.Yup, I have gone against the norm and will look to avoid in the future. I'll be honest and say this time we were a little lazy with how we have gotten the loans by going to our existing lender (rate isn't the best, but it is far from the worst) and not using a broker (also because we wanted the LOC to capilise the interest instead of being a deposit). Certainly with the next purchase we will do things differently.
Glennsa
Sitbon09 wrote:1. re ;'thus cross collatoralising and avoiding mortgage insurance'. How does this work?
2. What is PPOR?In basic terms, banks will typically loan you up to 80% of the purchase/property value without hitting you up for mortgage insurance (remembering mortgage insurance does NOTHING to protect the borrower).
In my case I was borrowing 105% of the value of the property, but because I used the equity in my primary place of residence (PPOR) and my overall equity position still had over 30% equity I avoided mortgage insurance.
However, doing it in this fashion does mean I am cross collatoralised/cross securitised and without getting into a long post, if my investment property tanked in value, and it pulled my overall equity position down below 20%, the bank could choose to hit me up for mortgage insurance ACROSS ALL PROPERTIES.
Glennsa
Glennsa wrote:Sitbon09 wrote:1. re ;'thus cross collatoralising and avoiding mortgage insurance'. How does this work?
2. What is PPOR?In basic terms, banks will typically loan you up to 80% of the purchase/property value without hitting you up for mortgage insurance (remembering mortgage insurance does NOTHING to protect the borrower).
In my case I was borrowing 105% of the value of the property, but because I used the equity in my primary place of residence (PPOR) and my overall equity position still had over 30% equity I avoided mortgage insurance.
However, doing it in this fashion does mean I am cross collatoralised/cross securitised and without getting into a long post, if my investment property tanked in value, and it pulled my overall equity position down below 20%, the bank could choose to hit me up for mortgage insurance ACROSS ALL PROPERTIES. There can also be other fun had in regards to selling property and what values may or may not do to overall equity.
Glennsa
oops, double post
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