Dear members and guests could you please comment on the following situation.
I’ve purchased properties in the last 6 years in the inner city of Brisbane. I am happy with the purchases and have sold 1 property to date for a good gain.
I know it may be personal choice and personal financial situation but I still think about the option of borrowing more money or using ‘equity’ to purchase more investment properties.
To this stage I have not used any equity at all to purchase the properties and I have always have had enough deposit to ‘make’ the ‘numbers’ positive. Yes I do like cashflow+ properties but focused more on capital growth.
I understand that I could have purchased more by using the equity, however, I felt comfortable doing it this way.
Simply asking, if the banks tell me that I have $1,000,000 worth of equity and I borrow that amount and purchase a property I still, at minimum have to pay it back or at least the interest. Right?
I suppose I’m a little conservative. I have been told it’s personal choice, however, I’m interested to read other peoples views on this.
I only have 3 properties at this stage but each purchase I ‘dumped’ in at least a 40% deposit.
The properties are 70% payed off and because of the recent boom in 2002-2004 the value has increased immensely.
I still have a healthy deposit for another purchase but at the moment even with my deposit it seems very difficult to poitivley gear a property in the 10k radius of the Brisabne city.
Thanks for your valued views and opinions.
Jay
jlee
Jay,
If your strategy is getting you where you want to go at the speed you want – why change it?
Cheers,
Aceyducey
In theory, there is no difference between theory and practice. But, in practice, there is.– Jan L.A. van de Snepscheut
Hi Jay,
Congratulations on your investing. You have done very well. As far as equity goes, I believe it is much better not to use equity, especially now that interest rates are on the rise.
I’d stick with using 20%+ deposits if you can. It would be difficult finding these +ve cashflow properties in a 10K radius of Brisbane nowdays though. Why not increase the radius a bit more. Qld has lots of opportunities still in regional areas, and the potential for capital gain is still there.
Good luck,
Del
Hi Qld,
Congratulations on your successes to date – a millionaire after 6 years of investing is not to be sneezed at.
I prefer to use equity in preference to saving a deposit primarlily because savings are made in after tax dollars and the time taken to save the deposit saw some investors miss out on some growth. Whether this is an issue in the current market is ultimately up to you.
One little ‘tweak’ you may want to consider is to use equity for the next property and park your savings in an offset or redraw account so they are still accessible and at the same time reducing your interest bill and therefore improving your cashflow situation.
Having said that the ‘next’ property could be looked at in the context of your portfolio rather than as a single entity. As such it is possible that the first three properties may be able to sustain any negativity in the fourth property.
But hey – it ain’t broke so why fix it?
Derek
[email protected]Property Investment Support Available. Ongoing and never stopping. PM welcome.
Thanks Derek for your opinion. I’ll definitely think of utilising the offset account option on my next purchase.
jlee
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