As a new student to +IP, I have heard about the concept of using equity from my private home to fund the 1st IP. How do you continue with houses 2/3/4etc once the equity is used?
Here’s my figures:
Private home value $400k
Equity $220kCan somebody please give me a quick lesson in using equity for multiple properties?
Cheers
GregBasically banks require a certain % ownership by you. e.g. 20%. They will lend the other 80%.
If you have a property worth 400K, and only owe 180K, then you effectively own 55% of you assets, and the bank ‘owns’ the other 45%.
If you purchase another house worth 200K for example, and dont use any deposit yourself, then the bank will give you 200K more mortgages. The total value of houses is then 600K, and you owe the bank 380K, which means the bank still only ‘owns’ 63%. The bank should have no problem with that at all. The bank will use both houses as security for the loan.
You could then purchase another house worth 200K. Total houses worth 800K, total mortgages is 580K, which is still only 72% The bank should be happy with that too.
The limitation will be your ability to repay the mortgage debt from rental income and your own pocket if necessary. This is why you want positive cash flow properties to make sure you dont hit this limitation.
Hope that helps you.
Andrew
http://www.rentmaster.co.nz
Software for LandlordsAs you said you have 400K value of house so first you have leave about 20% of home value which is 80k now you have 140K to invest in other property this 140k can buy you 140*5 = 700k worth of property using 20% deposit for properties if you have buy all these property positive cash flow and a bit below market price then you will have again some equity ( may be in 3-6 month ) and again you can use the same formula to buy more properties. and you can continue doing this if you use numbers well and but positive flow properties.
Amit
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