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equity finance

Discussion in 'Property Finance' started by version, 17th Feb, 2016.

  1. version

    version New Member

    Joined:
    16th Feb, 2016
    Posts:
    2
    Location:
    Sydney NSW, Australia
    Hi,

    Couldn't find any calculators or posts for this scenario, but I thought it is quite common, so sorry if this is a duplicate post

    What's a good formula for working out borrowing power for someone who has a single investment property.

    E.g.

    • property value : $800,000
    • loan remaining: $400,000
    • gross income: $100,000
    • Interest rate: $4.5% variable
    Other factors
    • property weekly rent: $600pw
    • strata levies and other expenses: $1200 pq
    Understanding is: equity is $400,000.

    What would be a safe amount to invest in a second property with good rental yield and avoid LMI?
     
  2. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Location:
    Sydney
    Total Security value x 80% roughly.
     
  3. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

    Joined:
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    Location:
    Canberra and Sydney
    You could potentially release $240k in equity by taking your borrowings up to 80% against that property.

    Whether the bank will allow it will depend on your borrowing capacity and their cashout policy.

    Cheers

    Jamie
     
  4. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    Location:
    Gold Coast
    "Avoiding" LMI for IPs isnt a strategy per se and may not suit your longer term goals.

    ta
    rolf
     
  5. Redom

    Redom Mortgage Broker Business Member

    Joined:
    18th Jun, 2015
    Posts:
    853
    Location:
    Sydney (West) and Canberra
    Loan structure:
    1. Release another $240k loan or line of credit against your current property mentioned.
    2. Use these funds as a deposit for future investment.
    3. Obtain a separate loan for the future investment, secured only by the future investment.
    What to check/watch out for:
    1. Your borrowing power and rental yield required for the new purchase. Its hard to tell you has income is only half the equation. Run the numbers on this.
    2. The bank cross securitising your loan. If you follow the loan structure above carefully you won't be x-coll.
    Other:
    1. What are your longer term ambitions in property - it will bring the light on considerations like LMI's value, fixed/variable, lender choice, etc.
    Cheers,
    Redom
     
  6. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

    Joined:
    18th Jun, 2015
    Posts:
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    Location:
    Perth WA
    Thee is so much behind this question that a ball park borrowing figure isn't really going to answer your question - you are asking about borrowing power, LMI and safety - it's big picture stuff that really deserves an in depth conversation.

    Any of the above brokers would be great to chat to and will help clarify things for you.
     
    Last edited: 17th Feb, 2016
  7. jpcashflow

    jpcashflow Well-Known Member Business Member

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    21st Jun, 2015
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    Location:
    Melbourne
     
  8. Steven Ryan

    Steven Ryan Mortgage Broker Business Plus Member

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    18th Jun, 2015
    Posts:
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    Location:
    Sydney & Gold Coast
    You'll want to talk to a broker for even a ballpark idea–too many factors in play to give an accurate or appropriate answer.

    As Jess said, plenty of great brokers have responded above :)