I do not have any ready cash to put down as a deposit and borrowing costs however I have a lot of equity in my home and some in two other negatively geared properties.
My question is – is it essential to have the cash to use as deposit and start up costs or is it possible to use the equity I have. Secondly if I do use the equity, how will that affect the calculations Steve uses in his book to arrive at the profits?
Regards
JudithYou can certainly use the equity.
If you use equity and no actual cash, then the cash on cash return will really be infinity!
Terryw
[email protected]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
Hi Judith, yes you can use your equity in your home for the deposit (say 20% of purchase price) and then borrow the remaining 80% against the new property.
You would physically need the $$ to pay a deposit on signing the purchase contract (though not necessarily the 10% requested, you can negotiate), so you will need to refinance or set up a LOC with your home equity in order to be able to actually use that money for the deposit. You can’t say ‘I have the money, but its locked up in my house – can I give you some bricks instead??'[
]Normally you pay the deposit if you have the cash saved elsewhere and then arrange the finance all in one hit through a mortgage broker or your lender – but as you say, you don’t have the cash elsewhere.
I haven’t seen the book as yet, so can’t comment on that part!
Tas [
]Hi Judith
You don’t necessarily have to have the full deposit. You may be able to negotiate with the vendor by putting down a small deposit and paying the rest at settlement.
However, there is nothing stopping you setting up a loan against your home now to allow you access to monies to pay a 10% deposit (this will also give you more bargaining power).
Using borrowed funds will obviously increase the interest costs (i.e. it will be 100% financed). You should take this into account when doing your numbers.
Cheers
Stu
Property & Finance News
at http://www.prosolution.com.auHi Judith
Most of the properties I have purchased I only put down $1000 but I guess it depends on how willing your Vendor is to accept that. Also i guess it depends on the cost of the property. In Qld 10% of the purchase price is a darn sight less than it would be in say Sydney or Melbourne. As they guys say estalish your line of credit and that will give the power of negotiaytion if the Vendor asks for a large depsit amont. Of course you know the answer – Invest in the Sunshine State.
Hi Judith,
We use the equity in our home to fund the deposit on the ip, then get finance for the rest. We find this easier to do.
Although we have made mistakes of giving 20% deposit up front. The real estate agent was a ‘stick-in-the-mud’ and didn’t like wrappers and we were dumb []. That’s all by-the-by now.
Cheers
Sooshie []“small steps make the journey” (SAS)
Hi Judith
Another point to consider is that, in many instances, it’s the real estate stake holder that insists on a deposit at least large enough to cover his/her commission. Also, the legal profession also likes to see a substantial deposit to dissuade purchasers from opting out. “Hurt Money” I think is the term for it.
Have a great day
Robert
Veni, Vidi, Vici
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