I have just finished reading steve’s book “From 0 to 130 Properties in 3.5 Years” and I must admit I am excited to think that owning property could actually result in +CF.
I have browsed through these boards a little and I hope I am not asking a question that has been answered previously, a lot of this stuff goes over my head at the moment!
Currently I am paying of a loan with my gf for the house we live in having purchased 6 months ago. It cost us 270,000 and we now owe 230,000 with about 6000 of that being additional payments available for redraw.
A couple of questions.
1. Equity is the difference between what a property is worth and how much you owe, but how do you ascertain how much a property is worth? Do you have to get someone to come in and value it?2. How do you borrow against equity? Is it a different type of loan? Is it the same thing as using current property as sucurity. I am looking at I.P.’s around the 100,000 mark, so from my understaning I would need at least 10k for deposit. Is there a way to get around this using the fact that I currently own about $40,000 of current house (assuming value is same as when purchased).
Sorry for the newbie questions, I see opportunites out there and want to understand how to get things moving.
Thanks
Dear small_time,
First of all, welcome to the forum.
To answer your questions:
1. Equity = Property Value minus Outstanding Loan
You can get a rough idea about the property value by getting a property agent to give you an appraisal or keeping an eye on what’s happening in the area. However, for the purpose of financing, the lender will get a registered valuer to value the property.
2. There are two types of equity – (a) equity due to extra loan repayments which you should be able to redraw easily (assuming your loan has redraw feature, (b) equity due to capital growth. To borrow against that you need to apply for a loan and go through the financing process.
Using your numbers:
Market Value: $270k
New Loan: $243k (at 90% LVR)
Equity available to invest: $13k ($243k-$230k)
Keep in mind there will be some bank fees (application fees, valuation fees, Lenders Mortgage Insurance, etc) so you are not likely to have the full $13k available.
That said the property value would (should) have gone up in the last 6 months or so the market value should be > $270k.
When buying the new property, you ideally should have 10% deposit plus closing cost (approx, 5-6% of the purchase price). That said, some lenders lend upto 100% of the property value. You would need to speak to your broker.
Hope this helps and good luck with property investments.
Sanjiv“There is no passion to be found playing small – in settling for a life that is less than the one you are capable of living.†– Nelson Mandela
Hi again,
Forgot to mention, Steve has released his new book ‘From 0 to 260+ properties in 7 years’. Its very good. You might want to read that one as well.
All the best
Sanjiv“There is no passion to be found playing small – in settling for a life that is less than the one you are capable of living.†– Nelson Mandela
Dear small_time,
Sanjiv provides some very good advice.
Reference the 100% loans that he mentions, be aware as Sanjiv has implied earlier in his e-mail, that although you can with some lenders borrow up to 100% of the purchase price you will still need funds to pay for the closing costs.
Many of my clients assume that because they can borrow 100% of the purchase price they will not need any other funds, which is unfortunately not the case.
Kind Regards
NeilNeil and Kate Gorman
Mortgage Broker
Mortgage Choice – there’s only one choice
tel: 0430 500 848
e-mail: [email protected]There is also 2 lenders offering over 100% loans which includes your closing costs but like anything you do pay a little over the odd for this.
Cheers
Richard Taylor
Residential & Commercial Finance Broker.
Licensed Financial Planner. Ph: 07 3720 1888
[email protected]
Looking for life cover – We Guarantee to beat any quote you have in writing.Richard Taylor | Australia's leading private lender
Further to the closing costs issue, a good rule of thumb to use for how much you will pay in closing costs is to allow 6% of the purchase price.
This is usually a little high, but it means you won’t get a nasty surprise close to settlement day.
Another rule of thumb in relation to rent – allow for 20% of it to be gobbled up in expenses per year. This also allows for 1 month vacancy.
Again, it is a little high (sometimes a lot high), but if you do your numbers with these two equations in mind, you will be in good stead with your cashflows.Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
What expenses need to be accounted for and what are some base line costs, from the top of my head…
Rates (% of property value?)
House Insurance
Liability insurance (Is this required, costs?)
Allowance for vacancy (1 months worth of rent?)
Commission to rental manager (5% of rent?)
Closing Costs (6% of property value)
Repair/maintainence kitty (how much required as a baseline?)I know there are other items to consider, but I can’t think of them at moment, anyone else want to add to the list.
Just two notes:
Management fees are closer to 9% of rental income and…
Valuations must be done by a valuer NOT A REAL ESTATE AGENT!! Agents are not qualified to value anything.[crying] They can only give appraisals. Appraisals are what they “reckon” you can get.[cigar] Sometimes this is not even anywhere near the mark (for various reasons[hmmm]).
That’s my two bits…[biggrin]
Also, work out what you can get on depreciation for the house/fittings.
ONE LAST COMMENT: Take action! Go for it! Do something!![lmao]
Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional.
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