Hi!
My name is David and I’m from the Netherlands. I bought the book in Australia on my holiday. I’m making a plan to invest in property, so the book is very interesting and handy. But I’m still left with a question which isn’t answered in the book, and I can’t find anything similar on the forum.
In the book, there is a nice story about Steve and Dave buying their first house. Steve tells they had bought the house with their own money and a (personal?) mortgage. This is fine. Everybody buys his or her first house this way. The ‘normal’ way to buy the next house is to sell the old one, renew the mortgage and buy the next one.
But, what do you have to do when you want to keep the first one? I don’t have to money or income to buy two houses. The bank wants an income guarantee. So, I figured the only way to have more than one property is to write a business plan and go to a financer (aka a bank). And you must hope that they’ll approve your plan. Is this the only way?
I can presume that if you have ‘enough’ properties, you can buy new ones with your own money, but I’m missing the financing part between the first house and ‘a lot of houses’.
I hope you can provide me with an answer and perhaps some experience.
Cheers,
DavidHi David
It’s a good question. When trying to aquire multiple properties one either runs out of equity or cashflow.
The property you own, is it the place you live in or an investment property?
In order to aquire a second property you would require money for a deposit (or equity in the current property) plus sufficient income to service the loan on the second investment property. Rental income from 2nd property counts towards this.
The way I read the book, Steve and partner were able to accelerate their property aquisitions by a combination of injecting money from their accounting work, by paying down principal with excess cash generated by CF+ properties and from the growth in property values in the area where they invested.
Without knowing all the details of your situation it is hard to suggest a course of action.Regards
CliveHi!
FYI: I’m living with my girlfriend is a rented apartment. We both work part-time. I am setting up my own business and she is studying. According to several banking sites in Holland, I can afford a house worth €125.000,- (Aus$ 250.000,-). Please keep in mind that here you can buy a small thatched house in the suburbs for that kind of money.
So, in my opinion I can do whatever I want. I like to hear your advice, but I’m also interested in your stories.Thanks,
David
.David
Your ‘normal’ way of moving on to the second house sounds like its for those who live in it, and upgrade when they can.
The way I bought my second was when I had saved some more cash, but more importantly the value of the first had gone up. At this point I refinance my loan to 80% of value, pulling out this extra cash as the deposit on the next house.
For income (for the banks) I had a job, but you also count the rental income you are getting. I’m not sure about the Netherlands, but hopefully your rental would be more than your mortgage payment and costs. If not, you will need to have income (earned) to satisfy the banks that you can afford to buy more houses.
Hope this helps
Cheers
MelDavid,
There are several solutions to your problem, one of them is to arrange for no/lo doc finance in which you can borrow between 80 – 90% of your existing property to release equity for the purchase of your 2nd property. Providing financials is not necessary.
Contact me on
[email protected].Melbear,
suppose we’ve a LOC of $190,000.-, can we use this to buy the 2nd and 3rd IP? (as long as it’s serviceable?)
Thanks.Melbear, can you explain in more detail how you refinance, i still haven’t really got what it’s all about, like you refinanced to 80%, what % was it before, and how does it free up the cash to buy the second?[
]Thanks heaps
Fudge111[
]from my understanding this is how it works.
bought a IP for 100,000
deposit 20,000
you owe 80,000
in 6 or 12 months time capital growth goes up 10%
new value of property 110,000
refinance at 80% of loan give you 88,000
pay off original loan 88,000 – 80,000 give you 8000 dollars to use as deposit on next property.
things to look out for doing it this way.
entry and exit fees (if you dont know them it can be quite costly.. trust me on this)
thats the basics of it anyway.. the 8000 is tax free cause its a loan. and you may have to put some of that 8000 into an account to pay the difference in the (possibly) neg geared property.Prop16
Are you saying that you want to use your LOC to purchase the No 2 and 3 houses outright, or use the cash in it as the deposits?
Either way is fine, and the fact that you have a LOC at that level suggests that the bank already thinks that you can service the debt. If you are using it for the deposits, the bank will probably take into account the payments on $190K anyway, plus the new loan you’re looking at.
Fudge, what Shaun said is correct.
Using your strategy. In year 1, you buy a house for $160K (borrowing all) – LVR 100%. You pay off say $30K, and maybe it rises in value by $5K to $165K. Your loan is now $130K (160 less your 30), and your new LVR is now 78%. In year 2, you pay off another $30K, and it increases in value by another $5K. Value is now $170K, loan is now $100K. LVR = 59%.
If you went to the bank and asked them either for a new loan of $136K (80% of $170K), they will do it in one of a couple of ways.
One way is as Shaun said, pay off the old loan, and have one loan now of $136K. This I would not recommend, as you would be using that extra $36K as the deposit for your next property, and one loan would make it a bit harder to work out your end of FY figures, especially if you are paying off the loans ASAP.
2nd way is (either LOC or standard) to ask them for a 2nd loan (same bank, same standard interest rates) for the $36K. This way, your accounting is easier as the loans are separated. May pay more in account keeping fees though.
Cheers
MelDavid,
My opinion is that the way to the second property depends upon a combination of equity and loan serviceability – unless you have both working for you, you will find youself contemplating an either/or situation as posed in your topic question.
I suugest that you get your principal place of residence sorted out first, then be patient and allow it to appreciate over a couple of years, as you wait you will probably pick up some pay rises over the years, and guess what – you have two factors working for you … BUT DO NOT GO TO THE BANK TO REFINANCE JUST YET … go and pay for some good financial advice on how to structure yourself (yourselves) for the next purchase and then, and only then, go back to several banks and see what is the best deal they can do for you.
This is how I got my second and hopefully will be the way I get more and more. Don’t expect it to happen overnight but plan for you to be able to get number 2 in the next 3 – 7 years depending on the markets in Holland.
Groeten – Kaybeesee
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