I have one investment property, a 2/1 bungalow in . it is paid off, and rented. clears about $900 a month.
short of saving up profits for a down payment and financing another place…… are there any good strategies for leveraging the one property to buy another…? Goals are long term hold and income cash flow…
thanks!
Hi Caron,
You may be able to use the equity you have in the bungalow as security for a line of credit type facility from which you can draw your deposits.
Depending upon a whole range of factors which are not limited to land zoning, postcode, premises size, your income etc a bank may allow you to borrow approx 80% (in some cases a higher percentage) of the value of the bungalow as a line of credit facility.
For example assume the bungalow is worth $250K it may be possible to set up a credit facility of up to $200K. From this you can take funds to use as deposit and purchasing costs on the next property.
I have significantly simplified the process and I recommend you grab yourself a decent broker to work through scenarios that suit your situation.
Hey Derek.
THanks for the info… I had thought a little about that. when you say deposit and purchasing costs… can you expand on that…? are you talking about then financing the new place 100% or close and using the LOC to pay fees, closing costs, any rehab etc..?
thanks!
Hi Carson, as Derek mentioned, if you have enough equity in the property you can go to 100% finance of the new property plus stamp duty, etc. You say you have paid the place off, so it seems you should be fine on this point.
The deposit/costs would be taken out as a separate LOC/term loan on the exisitng property, with the remainder taken out on the property being purchased.
The advantage of using your existing property for the deposit, etc is no cash is needed on your part to further your portfolio, and if the borrowed funds are being used for investment purposes, then the complete loan being taken out (regardless of the security it is against) is tax deductible.
Cheers
Tom
Hi Carson,
In effect you will be financing the new place at around 105% and your structure would look something like this.
Core loan secured by new property approx 80% of property value.
Line of credit providing the balance being 20% deposit and 5% for purchasing costs (stamp duty, legal fees etc)
N.B. – any rehab would be on top of the figures I have mentioned.
In some cases you could go above an 80% loan on the new property. There are so many factors that come into play when lender assesses whether or not to go above 80% and this is where a broker earns their keep.
N.B. note I have assumed in my posts that your bungalow is suitable for an 80% lend. It may not be – once again this is where the broker's expertise is invaluable.
Are you purchasing just one IP or do you have an aggressive plan over the next 3-5 years?
Regards
Shahin
TheFinanceShop | Elite Property Finance
http://www.elitepropertyfinance.com
Email Me | Phone MeResidential and Commercial Brokerage
Hi Carson
Welcome aboard.
The set-up Derek mentioned is quite common and is the way we set up most loans for new investors who are looking to use equity in an existing property to purchase others.
What are your longer term plans? Are you looking to purchase just the one more or build a portfolio?
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
Hi Jamie and Shahin
For the purpose of others watching this post, could you expand for if Carson was looking to purchase multiple properties through his equity.
ChrisA1
Persistence is 'to keep on keeping on, no matter how hard the going may be'
Equity can be accessed for the purchase of multiple properties. The assumption is that there is adequate equity to do this since the loan is completely paid off against the current property.
It is important that the facilities are standalone and that the interest is not contaminated between the IP's/purposes. The strategy then is do you go 95%, 90% or 80%. This requires a lot of research and discussion. This is a common strategy for a lot of investors.
Regards
Shahin
TheFinanceShop | Elite Property Finance
http://www.elitepropertyfinance.com
Email Me | Phone MeResidential and Commercial Brokerage
ChrisA1 wrote:Hi Jamie and ShahinFor the purpose of others watching this post, could you expand for if Carson was looking to purchase multiple properties through his equity.
Given that Carson's property is unencumbered there's probably a fair bit of accessible equity.
Depending on his strategy, tolerance to risk and serviceability – Carson could leverage this equity to purchase multiple properties at higher LVR loans or take a less aggressive approach and purchase one or two at lower LVR loans.
It's different strokes for different folks – what suits one investors might not suit another.
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
Generally speaking, and if serviceability was strong, how many properties could you finance at 95% lvr before lenders would want bigger deposits and lower lvr's?
WOW! You guys are great! I didnt notice that mostly it is Australian content when I signed up… but the ideas are strong even if some of the legalities you guys mention (tax stamps etc…) doesnt apply.
as of now this property is an income property for my mom(65).
I would like to over the next 30 years grow the portfolio for me and my wife (40 ish) to be several more properties for asset holdings, and income. I was targeting buying a duplex or fouplex, right now… something that would cash flow a teeny bit when mortgaged super high…. hold, pay down and begin seeing income. both of us work, kids, sports etc… so I have no fantasies about becoming a mogul… just want to use the asset/resource/ advantage I have in the paid off property, to get another, pay down, repeat…. but do it in a way that doesnt put a lot of risk on either property as far as vacancies etc….
I REALLY appreciate you all taking the time and commenting!
Is the property in Australia?
Regards
Shahin
TheFinanceShop | Elite Property Finance
http://www.elitepropertyfinance.com
Email Me | Phone MeResidential and Commercial Brokerage
This is tricky and its not best to gear that high with all properties. How high you should go on an LVR depends greatly between investor, situation and IP strategy.
Also getting an approval at 95% is harder than many think.
Regards
Shahin
TheFinanceShop | Elite Property Finance
http://www.elitepropertyfinance.com
Email Me | Phone MeResidential and Commercial Brokerage
no, northern California…. I registered and posted before noticing the australia thing!
TheFinanceShop wrote:Is the property in Australia?Regards
Shahin
I doubt it – referring to mum as mom
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
Yep thats what gave it away for me. I thought he may be he/she is from the states but living here.
Regards
Shahin
TheFinanceShop | Elite Property Finance
http://www.elitepropertyfinance.com
Email Me | Phone MeResidential and Commercial Brokerage
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