I am a beginner investor, I have just read Steve’s book and a few other ie rich dad.
Now my wife and I Would like to change our lifestyle and reduce our need to work. I believe
that property investing is the way to Go.Now we own our house loan amount $320 dep 20 k loan now $295, we also
have little funds available So I was thinking of two options:1st idea was to use the equity in our house(house in area are selling for $380) so we would have about $80k To invest in 2 ip’s (I hope). But I'm not sure as if we use the equity, doesn’t our Repayments go up?
2nd idea was to sell our home to free up the funds and have no debt then rent at a much lower amount and use the
Fund to buy 2 or 3 ip that will be either cf+ or a reno job,Now my problem Is I am not sure which is a better way and I'm not sure if we go with the 2nd idea, will I be able to re enter the
Martket to buy a p.p.o.r in the future3rd question is how does one go about bird dogging, i have heard it many times but how to pass the deal to other people.
i understand that the bird dogger finds the deals and works out the numbers but where do i find the people to pass on the
deal and how to work out the paymentsNever sell IPs. PPOR there is always a time to sell to gain TAX FREE money.
I'm sure you'll get plenty of mortgage advice. Your repayments shouldn't go up when you access the equity in your property as security to buy an investment property.
But as a property investor. Stick it out with your PPOR (Tax Free Mine) and do the hard yards to gain the required equity then buy right (you make money when you buy not when you sell, rule 1 never sell), add value and build real wealth fast.
Surprisingly there are many property owners out there who need and pay "bird dogs" (middle men) to find them properties and do all the impressive sums.
Hi Brad05,
If you use equity in your PPoR as a deposit on the I.P then your mortgage payments will go up as you are using loaned funds instead of cash as the deposit.
Your total finance for the I.P will be higher, which will affect your cashflow from the I.P's. This is not necessarily bad, but you need to factor this into the number crunching.
It is a known fact that in most cases it is financially better for people to rent a house themselves rather than own a house, and put the difference in funds between the rent and the house mortgage into investments (unless they own their house outright).
The problem is, most people have a psychological barrier with renting and owning I.P's and not living in their own home. There is a very strong emotional attachment to the PPoR for most. If you can overcome that barrier you are on the way. The other problem is that most renters never put the difference into any investments – they just spend it.
In your case you already own a PPoR (which is a type of investment in itself) that has gone up in value. Well done!
I would not sell this as you now have one I.P if you move out and put in a tenant. You can then access the equity you have to buy another I.P.
If you sell your PPoR, you will have selling costs, and lose the future cap gain on your property. It is not always a step forward to sell your property to buy another.
Incidentally, the way you work out your USABLE equity is;
The Banks will lend you 80% of the current house value, minus any existing loans.So, your position is:
$380k x 80% = $304k + $20k deposit = $324k
Existing Loan is $295k
USABLE EQUITY = $29k (add to that any funds you have put aside)There are some lenders that will let you use up to 90% or even 95% of your PPoR equity, but I believe this is very over-exposed and dangerous. Remember that lenders will say "yes", but it is not them putting their house on the line.
The amount of the repayment on your PPOR will not go up if you take out a new loan to purchase your IP. You're not actually accessing the equity as a transcation of sorts its just used as security for the additional loan.
The total amount of your repayments across both loans will increase and be offset by rental income.
Hi Brad
Remember you cannot actually borrow or access all the equity in your property – usually anyway. Most banks will only allow 90%-95% LVRs.
Instead of selling your home, why not jsut consider renting it? This way you can claim all the deductions and also rent something cheaper. And under s188-145 of the tax act, you could keep it CGT free too.
If you sell it you are just going to buy another proeprty anyway = stamp duty, agents fees, legals, loan exit fees, loan app fees etc.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
i would like to thank everyone for the words of encouragment and advice. i guess i will for the
moment try to save some more funds to be able to add it to the equity that i all ready have.
and also in the meantime i will educate myself more and research the market,
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