I keep hearing people talking about how they have created an investment portfolio by using existing equity.
I am pretty new to this, and I am not quite sure how I could do this.
I bought an investment property 5 years ago and I would like to either buy my home or buy another investment property.
Could somebody explain to me how I could use the existing equity to purchase a new property, and whether it’s better to buy an investment property or my own home, from a tax perspective?
Also, does it make much of a difference if the place is brand new?
Lets come on discussion on iProPertyCo:: http://www.ipropertyco.com/Forum/topic46-creating-an-investment-portfolio-using-equity.aspx
Firstly, you can’t ask what would be better from a tax perspective without giving detail. If you are buying for growth the PPOR might be better for tax reasons because you can get a discount on the capital gains tax, if you are buying to hold an IP might be better because you can claim more things on tax. It depends on your situation.
I never invest for tax reasons only. I seems stupid to invest so I can lose a dollar and get 30 cents back. It is fools who invest only for tax reasons. I invest to make money first…then I look at how to best minimise my tax.
Here is how I understand equity works.
Say you own a $100,000 property and you owe $50,000 on the mortgage. You effectively have $50,000 of equity (or you could say ownership) of the property. The banks will lend you 80% of the properties value. So in this case they might lend you a total of $80,000.
In the case that you already have a $50,000 mortgage you will be able to borrow a further $30,000 ($50,000+$30,000=$80,000=80%)You can either get an equity loan and draw out cash, and then use the case to purchase another property. Or you can buy a property using your equity as a security for your second property. So instead of taking cash out and then moving it to the next property, the bank assume security on the first property for the 20% (or however much) on the second property.
If the property is brand new you can generally claim more in depreciation…which can help your tax deductions
Ryan McLean | On Property
http://onproperty.com.au
Email MeSteve,
Sit down with someone who has done this, ask their story from start to finish. Take on board what you like and discard the rest.
The best gains will be made by someone who will be able to mentor you over a long period of time- for that you will pay big dollars unless you consult an intelligent Mortgage Broker who will be paid a trail on your loans (i.e. they will be paid, so you have access to their knowledge). You cannot and will not be able to absorb the required 15-20 years of knowledge required on a forum response. Your question should be along the lines of who has time to guide you in this new phase of your life.
@ number 8 – I like the idea of having a mortgage broker mentor you. But finding a mortgage broker who is ALSO a successful investor, using the exact same method you want to use sounds difficult.
I definately support using mentors to grow in your wisdom, if you can find them
Ryan McLean | On Property
http://onproperty.com.au
Email MeRyan,
That is an excellent post that clearly explains how to benefit or utilise the equity that you have established!
I have been looking to educate myself on equity and how to utilise for an IP and that clearly explains the process in black and white, so thankyou!
Sorry to hijack your thread Steve, all the best in your endeavours!
I totally agree with #8 you need to work with a mortgage broker someone who owns a few properties and not just 5% equity in his own home.
There are a couple of stragies to move you forward although givening factor will largely be serviceability and the type of property you end up going for whether it be capital growth or something with higher cash flow.
Both have a place in a portfolio and certainly can assist down the track when you decide to purchase your own PPOR.
Richard Taylor | Australia's leading private lender
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