Hi guys and gals,
I have a bit of a hypothetical that i need a bit of help with.If an IP is worth 320k and owes 320k and 25k is put into value adding renovations and its value is now 400k (assume the market didnt move over time of renovations). If this 80k equity is then drawn out on the IP for use in another IP what would happen if the now 400k home value declines?
If you sold the first IP but at a reduced price, can you transfer the negative equity to the new IP Loan??
I suppose the best way to deal with this would be after the valuation was given at 400k would be to have a look at the property situation in the area and decide what to do moving forward (ie. sell now, rent and hold etc.)
Cheers,
When you sell the 400k property you made a capital gain of 80k – 25k = 55k which may be liable to capital gains tax that you would be required to pay tax on. Also the sales agent may require a commission on the sale out of part of your 80k profit.
Usually banks lend out to 80% of the LVR on equity meaning you will only be able to borrow to 320k max so as to protect them from an equity valuation decrease.It would be a good idea to ask bank what LVR they will lend to for an equity loan.
duckster wrote:Usually banks lend out to 80% of the LVR on equity meaning you will only be able to borrow to 320k max so as to protect them from an equity valuation decrease.Depending on the lender you can generally go up to 90% LVR – some LMI would be payable.
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,
Wouldnt you only be able to get access to 80k not 320k. So they 80k would effectively become the new deposit for whatever property you buy next. If the person sold for 400k and made the 80k -25k profit, if it was their place of residence isnt it CGT exempt??i was thinking the same, but amazingjeffery put the question first. thanks!
amazingjeffery wrote:Hi,
Wouldnt you only be able to get access to 80k not 320k. So they 80k would effectively become the new deposit for whatever property you buy next. If the person sold for 400k and made the 80k -25k profit, if it was their place of residence isnt it CGT exempt??The $320k figure from Duckster was the amount the original poster could “top-up” to if borrowing 80%. That was derived from $400k *0.8
If the OP wanted to access equity in the property valued at $400k – and were able to increase the loan to 90% LVR they’d have access to approximately $40k (assuming they used cash for their renos and haven’t already added this figure to the $320k loan).
The $40k is derived from:
$400k * 0.9 = $360k (which is loan at 90% LVR)
$360k – $320k = $40kThere will be some fees, LMI, etc that will alter the end figure – but this gives you an idea.
If he sold the property, CGT would be payable because it’s an IP (I don’t think he mentioned anything about a PPOR).
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]
Thanks Jamie that clears it up a bit for me. So basically if I owe 320k on a place, increase its value to 400k, the max value of the next property can only be 320k minus fees etc.. If the house is my first place and my PPOR now and then i decide to move somewhere else and rent it out. Say 3 yrs down the track i decide to sell it, I can still claim CGT exemption cant I?
Hi Amazingjeffrey,
Not sure if i have misunderstood your question and my apologies if I have.
But from my understanding, (assuming your lender requires a 20% deposit/ 80% LVR ratio which most do), your 20% equity needs to cover BOTH purchases.For instance, in your situation
Debt: 320k
Value: 400k
Equity: 80k (20%). This equity is only enough to cover your current property.But, if for instance, your property rose in value to 420k, you would have enough equity to purchase an investment property worth 100k.
Hope that makes sense!
Thanks,
JodieOr alternatively if you were to push both loans to 90% LVR you could extract 40K from the current property ((400 * 0.9) – 320), and then purchase another 400k property with a 40k deposit. This is assuming you are able to come up with the purchasing costs and LMI as well, which would be around 20-25k.
I don't know your situation but if you haven't paid anything off your currenty loan and don't have any savings doing this might be a little too risky.
Thanks,
PeteThanks guys,
I owe 320k on my PPOR and at the moment just doing some renovations. At the moment in the area you can get a renovated 3 bedroom place like mine for 400-420k. Just trying to work out my next step, do I put the money into my renovations or do I just keep it and save for another deposit on another place. I expect to be in the place until end of next year but after that I think I will be leaving. When the renovations are done I could probably get 600 to 650 p/w for the rent as it was valued at 500 p/w prior to renovations. So wondering if its worth saving seperately for another IP after the renovations are done and renting this place out or selling it depending on the market at the time. I dont think trying to use equity after the renovations are done is really going to help much.
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