Hi all, Got lucky with an OTP apartment in Sydney which was nearly completed, and negotiated pretty hard. Exchanged contracts about three months ago. Looking to settle in the next month or so, and the valuation came up slightly higher (actually the exact amount I negotiated down ) FHB btw. I now have equity around 35k that I can access pretty soon, with about another 70k cash that I intended to keep in an offset account. I realised I want to do something with the equity, but I’m finding options quite restricted. By using the equity alone, I’m looking at possible house in Logan I can possibly rent out for a while and then reno later, or a bit of an older townhouse a little bit further north on the Brisbane side which will get me better cashflow. Should I: - buy house in Logan and generate equity later? (Not familiar with Logan apart from a few suburbs, which are beyond budget and so naturally hesitant knowing the demo in certain parts) - buy townhouse in almost Logan, but Brisbane, and possibly get neutral cashflow? - throw in some cash and buy closer to CBD - or do nothing and keep the money in offset for now. From Brisbane that’s why my first instinct is to buy there, but open to suggestions like Vic or regional centres
$35k on it's own doesn't go very far. For an investment property, it's a deposit and costs for a purchase price of about $200k. You probably need to use some of your cash savings or wait for the value of the property to increase further so you've got more equity you can use. Also, how are you calculating how much equity you have? Technically equity is the difference between what the property is worth and what you owe. To use equity for another purchase however, it's usually the difference between 80% of the property value and what you owe.
Yeah that’s exactly how I came about it. Valuation came 45k higher with a 20% cash deposit. Equity I can use is actually 36k to be exact. Didn’t think that 200k would be the purchase price, was thinking more around 250-300k mark assuming 12% down payment on 35k. Did my calculations go off wildly wrong?
Did you account for stamp duty and other purchase costs? Here's the breakdown I use as a rule of thumb: 10% deposit 2% mortgage insurance 5% stamp duty and other purchase costs Total: 17% It's a little rough, but it tends to work well.
Has a bank or mortgage broker actually said you can get a loan to access the equity and get another property?
Bang & Olufsen BeoLab 50 perhaps? Just kidding. $35k doesn't go far, maybe keep it handy for some liquid investments to complement your growing property portfolio, which keeps the option open in the future to repurpose it for capitalising IP expenses etc.
Are you willing to tap into your $70K cash buffer to get you into a purchase? Would only need about $16K to get you into a $300K purchase. Could be more beneficial than storing it in savings.
With the small amount of equity you have gotten so far and not touching the offset money I see only two real options. 1. Put the money into shares - either ETFs or LICs... you could buy direct shares but the etfs will give you diversification which you wont have with a direct share. 2. Keep the money in the offset and wait - there is nothing wrong with waiting. If you were willing to take money out of the offset then yes you could look at purchasing another IP however myself personally I would wait a year to see how your finances go as you are just getting your own place so best not to put stress on yourself of two mortgages in one hit. Also what are your future plans, I am assuming you are young so if you were wanting to have kids and get married (unsure of your status) then maybe buying an IP is not the right decision but this depends on your risk profile and where you see yourself.
I am definitely willing to tap into it, as long as the gains outweigh the costs. Will need to do some number crunching to see if it works out
1. Wife would kill me if I dug into our first home equity and bought into stocks :S 2. Problem here tho, is I don’t really have a positive outlook on capital gains in the area I bought; it’s south west Sydney. Probably on the upper limit of where you could get in the area, by a long shot. Doesn’t help with plans of metro getting scrapped by Labor. Also want to look at expanding portfolio ASAP. Already cost me dearly by getting into Sydney about 5-6 years too late.. Yeah bank says I can tap into it with LOC. I also have some arms length arrangements I could tap into for a little bit more funds, but then stuff gets grey which I don’t want to do.
Transfer duty will be circa 3% (1.5% up to $75k then 3.5% above that) and registration fees will be circa $1k. You will then have loan establishment fees and likely LMI on top of that. Make sure you keep these in mind.
Do you want this as your PPOR? Too late to on-sell the deal to someone else? Why enter the market at the peak of the cycle especially when things are cooling down?
