All Topics / Finance / Getting equity to buy Property 4

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  • Profile photo of ChristineNurseChristineNurse
    Participant
    @christinenurse
    Join Date: 2013
    Post Count: 17

    Good Morning all,

    Would like your advice on the following. I currently have 4 properties  (3 investment + 1 residence). All my investments properties are currently fixed for 3 years, interest only loans. I wish to purchase Property investment 4 next year using equity from the other IP. However, because it is interest only, can I get equity. I only have about $10K cash. Will the banks lend me $$. How does this equity work? I heard that if you have an interest only loan, i cannot use the equity.

    Can anyone shed some light on how to move forward with finance?

    Thanks

    Christine

    Profile photo of TheFinanceShopTheFinanceShop
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    @thefinanceshop
    Join Date: 2012
    Post Count: 1,271

    It doesn't matter if its interest only or not. Most banks offer free upfront valuations. Speak to your banker or broker and order an upfront valuations first to see how much equity you have. Its quick and its free.

    Equity is calculated on the between 80% to 90% of the value. So lets say the property is worth $500,000 and your current loan against the property is $300,000. At 80% lend (which is $400,000) you will have $100,000 in equity ($400,000 minus current loan limit of $300,000). At 90% lend you have $150,000 in equity ($450,000 minus $300,000) but because the LVR is above 80% – you will be paying LMI which can be added to the loan (capitalised). 

    In summary – start with the upfront valuation against all the properties to see what sort of equity you have. You may need to tap into a little equity from each property.

    TheFinanceShop | Elite Property Finance
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    Profile photo of BennyBenny
    Moderator
    @benny
    Join Date: 2002
    Post Count: 1,376

    Hi Christine,

      While talking to your Banker, do check out the "break cost" of any/all of your Fixed Loans.  Depending on what Interest you have locked in, and the lending rates today, you may be up for a huge cost, or nothing at all.   I would think right now, the break costs would be huge.   As I understand it, if they can finalise your Fixed Loan and then re-lend those freed-up dollars at a HIGHER Interest Rate, then the break cost may be very little, or even free…..

      But if your Fixed Loan is (say) at 7% and they are only getting 6% if they lend it out again, then the break costs can be exorbitant.   Better to know upfront where you would stand with those.

      Perhaps an extra loan can be created over and above a Fixed Loan e.g. using Shahin's example (value $500k, current loan $300k) perhaps you can borrow an extra $100k as a separate loan without "breaking" the Fixed Loan.   It is worth asking the question of your banker/broker. 

      Oh, and check any LMI cost – I suspect it could be factored on the total borrowings, and not just on a new $100k loan.   Again a banker/broker would know this.

    Benny

    Profile photo of TerrywTerryw
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    @terryw
    Join Date: 2001
    Post Count: 16,190

    Being fixed doesn't mean you cannot set up a new loan with the same bank – and Benny's suggestion is good too.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
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    Profile photo of Jamie MooreJamie Moore
    Participant
    @jamie-m
    Join Date: 2010
    Post Count: 5,069
    ChristineNurse wrote:
    Good Morning all,

    Would like your advice on the following. I currently have 4 properties  (3 investment + 1 residence). All my investments properties are currently fixed for 3 years, interest only loans. I wish to purchase Property investment 4 next year using equity from the other IP. However, because it is interest only, can I get equity. I only have about $10K cash. Will the banks lend me $$. How does this equity work? I heard that if you have an interest only loan, i cannot use the equity.

    Can anyone shed some light on how to move forward with finance?

    Thanks

    Christine

    Fixed and interest only doesn't necessarily present an issue when releasing equity.

    What are the values and loan amounts for each property and which lenders are they with? 

    Cheers

    Jamie

    Jamie Moore | Pass Go Home Loans Pty Ltd
    http://www.passgo.com.au
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    Mortgage Broker assisting clients Australia wide Email: [email protected]

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 12,018

    Hi Christine

    Who is the lender ?

    Cheers

    Yours in Finance

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
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    0-40 Properties in a decade with a unencumbered portfolio value in excess of $40M. Ask me for a copy of my API Interview.

    Profile photo of ChristineNurseChristineNurse
    Participant
    @christinenurse
    Join Date: 2013
    Post Count: 17

    Hi Jamie/Richard,

    Heres the info

    PPOR: ING, fixed 3 YRS, I, 4.84% ,Loan amt:$230K

    IP1: WESTPAC, fixed I,  1YR, 4.99%, $164K (BOUGHT $242K)

    IP 2: MACQUARIE, Fixed 3yr I, 5.19%, $240K

    Cash / Savings: $20k, BUT only want to use $10K

    So have I dug myself into a hole?

    Profile photo of BoughtWithEquityBoughtWithEquity
    Participant
    @boughtwithequity
    Join Date: 2013
    Post Count: 68

    Hard to say what you've done at this point with the information provided.  What's the 3rd investment property?  what's the cashflow on each of these units?  You might want to inquire with each of your current lenders what kind of deals they can offer you to consolidate all of the loans with one lender.  You can sometimes do that in the states with minimal costs.  You have some excellent brokers responding here who can probably help you directly so its worth contacting them.  I hate debt and hate bankers even more.  These are all short term loans and what if the market tanks when they mature?  Then, you are stuck with no way to refinance.  Too my way of thinking, you are already too highly leveraged and shouldn't even be thinking of taking on a 4th property….especially with not much in cash reserves.  Doing so usually leads to trouble.

    You might also want to consider raising private money for future investing.  That's what I do.  We pay our front-end partners 10% and half the profits on properties we purchase which we then renovate and rent as shared housing…before selling them off to passive investors.  The model works well and our front-end partners are secure and averaging 20% to 30% per deal.  We created a referral network to attract new investors by which we split our profits with referral partners 50/50.  It's a win-win model and while we don't make a ton of money per deal, it brings us a steady supply of funds.  The referral partners are able to monetize their social network and the investors can't earn these kinds of returns anywhere else.  Granted the properties we purchase in  the state are a ton cheaper than what you are looking at but the principles are the same.  Just be very careful that you have your bases fully covered on the properties you already own before you bite off more.  Have you thought about consolidating the other loans and paying off the $164k loan?  Happy New Year and happy investing!  Andy

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 12,018

    Hi Christine

    Thanks for the additional information.

    No not at all i think you certainly have options available for equity release.

    Whilst ING can be a pain to deal with for an increase loan there are a couple of ways around it.

    As long as you have serviceability to move forward i think you have amble opportunity to increase your portfolio.

    Cheers

    Yours in Finance 

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
    Email Me | Phone Me

    0-40 Properties in a decade with a unencumbered portfolio value in excess of $40M. Ask me for a copy of my API Interview.

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