Hello all,
I am relatively new to the property investing market and I have a few questions about equity that may seem a little laughable. I will give give you a little detail as to my current situation.
I currently own a house on the Sunshine Coast in Queensland which is totally unencumbered and located in walking distatance to the beach. The original purchase price was 160k in January 2002. I have had it valued recently, after some renovations, at 380k.
My fiancee and i have both moved back to Brisbane for work reasons. We live with my fiancees parents, hopefully for not to much longer, and want to buy something we can renovate and hold for a year or twon and then sell and move onto the next one. Whilst doing this we want to purcahce cash flow positive rental properties so I can stop working for someone else and work for myself, as I am a Carpenter & Joiner by trade and can do most of the work myself. We intened on renting the property on the coast out as it is in a high capital growth area and also wish to keep it for future holidays.
My fiancee is a professional (Audiologist) working two part time jobs earning approximately 50K per annum. I am currently employed full time as a customer service officer for a large hearing aid manufacturing company earning 38k per annum.
Finally, my question is, how do I release the equity in my house to purchase investment properties. Both my fiancee and I are having dificulties trying to get our heads around the entire equity concept. My understanding is that I approach a bank and they take 80% ownership over my property on the coast and I then put 304k in a line of credit. If this is the way it works is there intrest or any other fees accosiated with equity loans[?] Have I got this right or am I totally on the wrong path[?] Many thanks in advance for your kind responses.
P.S. We have listened to many of Steve McKights products and found them to be very helpful, insightful and inspiring and plan to use many of his strategies. [
]this is the blind leading the blind, but coz no one else has answered i’ll give it ago i think all you do is go to the bank get your house re-valued, the bank give you the difference + plus the amount they feel you can service. you use this to buy a new house.. i’d guess u would have to pay all the usual fee’s and charges, i dont know if it is a new loan or just an extra amount ontop of your existing loan.
i only have one loan for one IP so i dont really know.
Hello Fishoholic
You have a nice situation to turn that high capital gain asset into a massive income flow (positive geared property) as you say.
Basically, accessing equity is an alternative to selling your house to free up funds. The difference is that you are betting the bank that you can earn income with the equity exceeding the interest, and you retain your asset.
You are in a strong position so DON’T PAY ANY FEES TO THE BANK. Negotiate fees, get a fee free (reduced), flexible loan facility. Don’t assume you need a line of credit. They are beautiful but you may get a redraw/offset loan which does the same job for 1% less.
If you are serious about positive geared real estate as a living, you probably do need a line of credit. I would fix the interest rate and the only fees you should pay are the asset valuation and security transfer fees to underpin the loan. ALL FEES ARE NEGOTIABLE HOWEVER.
You should start thinking of property as just another form of money, just not as liquid. Equity is a way of accessing $$$ without disposing of assets (capital gains, transaction costs)
Hi Fishoholic,
“Releasing” the equity in your home simply means that you put it up as collateral for a loan you take out to buy another property.
For example, your home is $380k. Assuming it’s fully paid off, 80% is $304k.
You want to buy another property for $300k. 80% is $240k.
This means that you could borrow 100% of the purchase price of the property + costs, let’s say a total of $315,000.
The bank will lend you up to 80% of the value of your collateral without charging mortgage insurance (which is around 1-1.5% of the loan amount).
So you borrow $315,000, and put up your 2 properties (ie the one you now own and the one you’re buying) as collateral for the loan, giving a total collateral value of $680.
This means your borrowing LVR is only about 47% (ie $315k divided by $680k), so there’s no problems getting the loan!!
And no, you don’t give the bank ownership of ANY of your properties. You still own all the properties you have and you buy. The bank simply slaps on a mortgage over your properties, which secures the repayment of its loans to you.
Cheers
MI agree with Harold in part.
– You don’t need a line of credit.
– Negotiate on fees but also pay just as much (if not more) attention to the interest rate. Lenders may also discount interest rates.
– No cannot have a fixed rate line of credit (only variable)Cheers
Stu
Property & Finance News
at http://www.prosolution.com.auHey Stu
I believe the Rock Building society fixes lines of credit interest rates without taking away flexibility in other areas
Hi Harold
You are right, they are one of the very few (if not only one). However, look at the LOC rates Fixed 1 yr 7.00%, 2 yrs 7.25% – perhaps you can get better rates elsewhere.
Josie
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