We have a property worth approx $300k with $130 mortgage. It seems to me that if I sell it, I can use the balance left over to invest… surely if I use the equity and keep the property, it just ties me up in more paperwork and ties subsequent deals together?
Any comments?
Eddiej in SA
So to simplify things you want to sell a property to buy another property?
Sounds like a lot of fees for others …
Simon Macks
Residential and Commercial Finance Broker
[email protected]
0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
This question comes up on the forum about oh; every 2 days.
My answer; keep the existing property and access the available equity to use towards more properties.
As Simon says, by selling your existing place, then buying another place, you may have more available cash, or equity initially, but after you pay selling and purchasing costs, you end up with about the same equity as in my suggestion.
Far easier to refinance existing place and go from there.
Simon or one of the other wizards on this site can set you up on the right path. There is a little bit of paper work at the start, but once it’s done you set and forget to a degree. It’s easier than trying to sell your existing place and dealing with agents.
Don’t sell.
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
Eddie
You dont mention whether the property is a PPOR or IP but clearly if it is your PPOR you would presumably merely be selling one to buy another with all the associates costs, fees and stamp duties.
I would argue that if you sell you will actually come out with less cash in your hand as you could refinance to 95% if you wanted to and i am sure with agents fees and stamp duty you will use up more than 5%.
If it is an IP then why not get set up correctly from day 1 and as Marc mentioned then you buy and forget your IP’s with little loan mangement.
Cheers
Richard Taylor
Residential & Commercial Finance Broker.
Licensed Financial Planner. Ph: 07 3720 1888
[email protected]
New Shared Equity scheme has arrived – Email us for details.Richard Taylor | Australia's leading private lender
I am trying to get my head about all this using equity business. If you use a current property’s equity to fund the next – say 20% of it because that’s what you need to avoid LMI you are still paying interest on 100% of the purchase price. Most unlikely surely that rent and depreciation benefits would cover the cost of theloan????[blush2]
N. Brown
Hi RP
It doesnt matter what the security you offer to raise the funds against as long as the purpose was to buy an investment or income producing producing property it will be tax deductible.
The reason why you look to split your loan rather than Cross collaralise the securities is to avoid potential problems in the future.
Dependant on the property you choose will detemine whether your costs are covered irrespective of how the loan is funded.
Cheers
Richard Taylor
Residential & Commercial Finance Broker.
Licensed Financial Planner. Ph: 07 3720 1888
[email protected]
New Shared Equity scheme has arrived – Email us for details.Richard Taylor | Australia's leading private lender
OK, I’m officially confused!
I know this question comes up every couple of days on the Forum like LA Aussie says, but it must be a sticking point with many new investors which is why I’m asking the question again.
Am looking to get started with IP’s and having been diligently researching and educating myself for the past 10 months whilst getting my financial affairs sorted.
Upon reading Steve’s latest book, which was quite revealing, I became interested in his “sell you PPOR to finance IP” strategy.
This strategy would be to sell my house, realising a profit of $100K after selling costs. Then, use this lump sum in financing an IP deal.
So, doesn’t this mean that if i buy a $250K IP and use $60K for deposit and legals, then I’m only looking at covering a $190K loan?
And aren’t the odds more in my favour of working a +CF deal this way?
Am I missing an important piece of the puzzle here?
If I were to re-finance current loan and access the equity available, wouldn’t I still be paying interest on a 100% loan?
Of course the goal of the whole operation would be to purchase a new and improved PPOR in say 3 – 5 years, whilst still growing the IP portfolio.
Good news, the wife is willing to look at renting again for the short term!
Thanks to all who contribute in this forum. It’s probably one of the most valuable tools I have in my arsenal.
I’ve stood by over the last 20 years and have watched friends work hard and prosper extremely well from investing in property. This was even in the dark old days of 17% interest!
A close friend in Brisbane has just totally turned her life around in 7 years by buying/subdividing/renovating whilst being a single mum. It can be done!
mymatephil
You can turn any property into a cashfIow positive one simply by putting down enough cash as a deposit. The problem is most people don’t have enough ready cash to use for this.
The less you borrow, the more chance you have of the rent covering all holding costs, thus a +cashflow.
Selling your PPoR and using enough of the excess cash as deposits will do this for you. Of course, then you have to rent a place yourself. For most people, renting themselves and owning I.P’s is a more sensible financial strategy, but most people are too emotionally attached to their PPoR and won’t make the move.
I prefer the strategy of retaining the PPoR, moving out and converting it into another I.P, and renting a place myself and using the increasing equity in the properties I buy to fund the next one. This way I am using none of my own money to increase the portfolio; the cash-on cash return is infinity. The smaller your personal cash input is, the higher your cash-on-cash return is.
If you refinance your PPoR and use some of the equity as a deposit, you will still need to borrow the remainder, thus you have a 100% (usually more) finance on the I.P, which makes it harder to create a +cashflow deal, but it can still be done.
The trick is to use as little of your own money as you can, and still acquire I.P’s that pay you money and/or go up in value a good amount.
Doing it either way is o.k, but to use lots of cash for each deposit decreases your leverage and thus your returns.
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
You can turn any property into a cashfIow positive one simply by putting down enough cash as a deposit. The problem is most people don’t have enough ready cash to use for this.
The less you borrow, the more chance you have of the rent covering all holding costs, thus a +cashflow.
Selling your PPoR and using enough of the excess cash as deposits will do this for you. Of course, then you have to rent a place yourself. For most people, renting themselves and owning I.P’s is a more sensible financial strategy, but most people are too emotionally attached to their PPoR and won’t make the move.
I prefer the strategy of retaining the PPoR, moving out and converting it into another I.P, and renting a place myself and using the increasing equity in the properties I buy to fund the next one. This way I am using none of my own money to increase the portfolio; the cash-on cash return is infinity. The smaller your personal cash input is, the higher your cash-on-cash return is.
If you refinance your PPoR and use some of the equity as a deposit, you will still need to borrow the remainder, thus you have a 100% (usually more) finance on the I.P, which makes it harder to create a +cashflow deal, but it can still be done.
The trick is to use as little of your own money as you can, and still acquire I.P’s that pay you money and/or go up in value a good amount.
Doing it either way is o.k, but to use lots of cash for each deposit decreases your leverage and thus your returns.
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
Hi Phil
As Marc has mentioned why would you go to the expense of selling (incurring agents fees) and then incur stamp duty again by buying just to try and get something that is going to give you positive cash flow.
If you think you own PPOR wil increase in value over the years then by all means rent it out and you go and find somewhere to rent.
The rent you will receive will be more than the mortgage repayments so it will be positive but you will have to pay rent to someone else.
You can keep the tax free status of your own PPOR by renting it out for 6 years before you trigger any CGT so you might decide to rent it out and then move back in at any time within the 6 year period.
In saying this you wouldnt be getting anywhere unless you borrrow against the equity start the process all over again. By all means move out and rent and receive rental income on your own home but don’t leave it at that otherwise you are going nowhere fast.
Cheers
Richard Taylor
Residential & Commercial Finance Broker.
Licensed Financial Planner. Ph: 07 3720 1888
[email protected]
New Shared Equity scheme has arrived – Email us for details.Richard Taylor | Australia's leading private lender
Thanks Richard & Marc,
you’ve both shed some clear light on my confusion.
However there are still one or two foggy points but I’ll keep researching and re-reading your posts.
Richard, unfortunately whilst my PPoR is showing growth of 7.5%pa, rent in my area still won’t cover my mortgage at this stage. Will have a shortfall of at least $100pw.
Am also needing to upgrade my PPoR as it’s quite small and with a growing family it’s almost time to move. Renting would put me in a larger house, in the same area and free up capital to aggresively start a portfolio. Equity gained would continue to be used to keep the portfolio growing.
Cheers
Phil
Lots of good info above for sure. My second IP was purchased purely with the equity from my first IP after about 3yrs of buying it. To buy my 2nd, i had to pay about $500 of my own money including purchase costs.
I got a great deal and for 18 months that property cost me nothing even at just over 100% finance as the rent was great and in that time it doubled in value. I recently sold it making about 80K after selling costs. and will use this money to fund another 1 or maybe even 2 more IP’s.
I personally cant see the point in selling one 300K property to buy another 300K odd property just to reduce the morgage. (which is what you are kind of talking about). I also think that 20% deposit is the maximum you want to put into a deal, generally speaking.
My advice in your situation is to rent out your house, move into a cheap rental, and use the equity in your home (consider using Mortgage Insurance to get the most equity out of it) and use it to purchase another property. Work hard to find a property worth buying at the higher LVR. This is where your money is made.
I worked these rough figures:
You have 170K equity currently. 300K-130k=170K
Of this, the bank will happily lend you 80% of 170K = 136K.
This is more than enough to buy 1 or even 2 properties.
Then you will have 3 propertyies wont you?
If you use Mortgage Ins then you will have access to $161500 to fund deposits with.
Assuming the bank values your house at 300K of course.
Hope this helps you a bit.
Hi just joined today and going through the forums very informative.
Beginners question What do PPOR, IP and FHOG stand for? it would help me out a lot
Thanks for helping the uninitiatedOK thanks so far to all. Let me see if I get this straight… re-mortgage free up some equity, say 170K as per the example. This may provide approx 136K (80%) for new props. So good so far…
Now I need to find some IPs, and borrow effectively the rest as well and then get a rental return to cover ALL the costs? This still seems over the top as rentals have not kept pace with IP prices. If you get rent of around 280pw it’s close to a 300K prop… not 150K!
However I also have some cash in the bank… say 140K, how would I then spread these funds; from equity and cash to make myself some +CF and growth (fingers crossed…?)
Eddiej in SA
Originally posted by suesproperty:Hi just joined today and going through the forums very informative.
Beginners question What do PPOR, IP and FHOG stand for? it would help me out a lot
Thanks for helping the uninitiatedWelcome to the PropertyInvesting.com forums suesproperty.
I can help you out there.
PPOR – Principal Place of Residence (ie the home you live in which you currently own or are paying off)
IP – Investment Property.
FHOG – First Home Owners Grant.Hope that helps. [biggrin]
MT.
If you have cash in the bank, then it would be best to pay down the PPOR loan (as the interest is not claimable) and then to reborrow this for investment purposes – interest will be claimable.
Terryw
Discover Home Loans
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Originally posted by youngfella:I worked these rough figures:
You have 170K equity currently. 300K-130k=170K
Of this, the bank will happily lend you 80% of 170K = 136K.
Just on a technical note, shouldn’t the 80% be calculated on the property value?
I.e. 80% of $300K leaves $240K. So the bank will lend up to $240 with no LMI. You owe $130K so you can borrow a further $110K.
Have I got this right?David Coffey
Sounds correct David. 80% of Current value less existing loans
Terryw
Discover Home Loans
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Originally posted by Mortgage Hunter:So to simplify things you want to sell a property to buy another property?
Sounds like a lot of fees for others …
Simon Macks
Residential and Commercial Finance Broker
[email protected]
0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
Well put Simon
Essentially that is what is happening.
Terryw
Discover Home Loans
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Send an email to get my newsletter.Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
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