G'day..
We have two IP's that have been valkued at approx. $770,000 and a mortgage of $740,000. These properties were purchased in the last 4 months and have already shown capital growth. If we were to continue to pay Interest and principle for the next 2 years we have estimated that we can get the mortgage down to $700,000. If we buy another property do we or can we use the equity accumulated (approx. 100k hopefully) as a deposit on a third Investment property? We aren't quite sure how to best use this equity to re-purchase if we use this as a deposit, as we are puting in all our money into repaying the mortgage on the 2 porperties purchased so far. Any help would be great… thanks
tuggerwaughYou should be able to just redraw the funds to use as a deposit on a new IP. This would be easiest.
Otherwise topup the existing loan.
Do not redraw and use for personal use ie a car, holiday etc. This will be nondeductible and mess up the whole thing!
You can use the equity however you like! Banks will throw the money at you, regardless of what you use it for (Do not use the money for anything else but re-investing!!!!)! Just keep in mind that if you are re-financing your loans to re-invest you will be paying interest on 100% of the purchase price, as you are borrowing against the equity of your properties.
Stumunro wrote:You can use the equity however you like! Banks will throw the money at you, regardless of what you use it for (Do not use the money for anything else but re-investing!!!!)! Just keep in mind that if you are re-financing your loans to re-invest you will be paying interest on 100% of the purchase price, as you are borrowing against the equity of your properties.Thanks for both your replies…good info… If I use my equity as a deposit does that mean I can still avoid the LMI if I deposit more than 20% of the value from the equity I have acquired? I am trying to decide whether to throw all our incomes into the 2 mortgages now and use the equity as a deposit, of make minimal payments and save for a deposit with cash in hand. I suppose being able to reduce my LMR to 80% is the most important aspect. Cheers
TuggerwaughHi tuggerwaugh,
Other than the comments already mentioned above, I suggest you should consider changing your loan to Interest Only. It does not stop you from making excess repayments but not force you to pay principal.propertypower wrote:Hi tuggerwaugh,
Other than the comments already mentioned above, I suggest you should consider changing your loan to Interest Only. It does not stop you from making excess repayments but not force you to pay principal.Thanks for that advice…haven spoken to our lender I have to bring the LMR down below 90% to use the IO repayments option, so hopefully within the next year our equity will increase and therefore bring down our LMR. Cheers
tuggerwaugh
tuggerwaugh wrote:Thanks for both your replies…good info… If I use my equity as a deposit does that mean I can still avoid the LMI if I deposit more than 20% of the value from the equity I have acquired? I am trying to decide whether to throw all our incomes into the 2 mortgages now and use the equity as a deposit, of make minimal payments and save for a deposit with cash in hand. I suppose being able to reduce my LMR to 80% is the most important aspect. Cheers
TuggerwaughRemember if your trying to avoid paying LMI on anything then you not only have to have atleast 20% deposit/equity on your current IP's but you then also have to have a 20% deposit on your new property.
Break either one of those ratios and you'll be forking out for LMI.
Hi there,
Do you have the offset account. if yes, then why not put all the extra money against each property that way you will have your money available anyway & you will pay less interest as you got money sitting in offset accound. Then when you decide to go ahead use that money to buy.
Bharat.
If you already have the two properties with loans, there is no point in trying to save separately for a deposit (and paying tax on the interest) – use an offset account as outlined above – you can still get access to your money & 'reduce' the amount of interest that you are paying simultaneously.
An offset account can be really useful in saving interest and having quick access to your savings. However it appears that usually if you have a mortgage offset facility your interest rate is higher, so you need a certain amount of cash in your offset account to compensate for the higher interest rate. Some people find they are financially worse off with mortgage offset.
In regards to LMI, it is true that you normally need 20% deposit/equity to avoid LMI. I have recently borrowed 100% without LMI through a lender called Medfin. You must be a medical professional to qualify for this (I think nurses can get 90% or 95% without LMI and they might also include physiotherapists etc.). The other condition is that you must reduce the debt to 80% of the value in 5 years time, so the loan is split into a P&I loan for 20% of the purchase price and 80% interest only for the other 80%.
The Medfin loan (and maybe there's other similar loans around) are great in a booming market like there is now, it might just allow you to get that extra one property, but beware of overleveraging in case things go bad.
Hi Tuggerwaugh
It appears that you regard these two properties as "keepers" and want to have another one. This is a good goal, but there is a quicker way to get there. Why not use whatever equity you can pull out as a deposit on a cheaper, undervalued property, that you then mark up and sell fairly quickly? If possible also value-adding by getting a DL, do a minor reno like painting or landscaping, or offering 2nd-mortgage carry-back.
Once you sell this third one, make sure you pay back the equity into the loan you got it from, and then use the profit for the deposit on your next "keeper"?
We have been using cheaper deals that turn a quick profit to create deposits on "keepers" for years, and it is a great way to add to that portfolio you are looking to build. Don't want to renovate? Then don't! But still give your buyer a "Fair Go" E.g. one of the best deals we ever did was a damaged house we bought for $41k after cyclone Larry, then sold within 2 weeks for $79k. The guy is fixing it up and it will be worth over 200k after he spends about 35k on it so he's happy. And a month or so ago we picked up a tenant-trashed house for 120k that we now have an unconditional contract on for 155k… selling to a renovator. He will do well, coz it will cost only 20k to fix, and then be worth about 220k.
You see what I am saying here? You don't HAVE to spend a lot of your own effort. Make that equity work harder for you, create a good deal for someone else, put the equity back and then use the profit for your "keepers". Of course, subsequently keep your eyes peeled for another deal, and another…
Hope this opens your thinking to a wider bunch of ideas. This is the "getting Creative" forum after all!
Mr Fair Go
Mr Fair Go,
Fantastic advice
Good on ya!Thanks for all the good advice…
Yeah are paying principle and interest without offset because our interest rates are quite low….to transfer to an offset account this would push our interest rates up and we are quite happy with the variable rate we have secured so far.
Inregards to another property I am thinking very carefully what to do now with all the bad predictions of interest rate rises going well into the next few years. I am lucky to have a couple of blocks of land that were donated by my parents so that may now be the best move for me….building and then selling one of these blocks and keeping the other as a PPOR when I return to tasmania… thanks again for all your great advice…listen to it all…cheers
tuggerwaugh
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