Hi guys, I am in the process of buying my next IP. The price is $275K. I have $74K savings plus $26K equity for one of my properties = $100K. As per new rules, banks will only give me an investment loan for 80% LVR only interest. I will need 20% deposit of $55K. Plus money for stamp duty and legal fees which will be about $12K. So $67K ish all up. My question is: I was planning to buy two properties with that money and because the new loan rules look like it will be challenging. What is your suggestion to make sure I take the max profit of this scenario? The new property have: Desky: $304K x 80% = $243.2K Loan = $220K Equity after settlement = $23.2K Thanks
Hi Rolf, yes we are getting 26K equity from the existing loan and the new property after settlement expecting 23K equity after valuation. I hope I am understanding your point, if not please add some more details. ta
The new property have: Desky: $304K x 80% = $243.2K Loan = $220K Equity after settlement = $23.2K The valuation will likely be 275k (your purchase price) so zero equity after settlement for the IP. 275k Purchase 220k Loan 55k Deposit Deposit either taken from savings (74k - 55k = 19k left) or you take the equity out of 26k from the other property and the other 29k from cash. I would prefer to take the equity out and use this money as it would increase deductibility of interest and you are not using your 'personal' money and it also gives you a larger safety net. Go seek your own professional advice but I don't see how the bank will give you a valuation 10% above what you paid - as this is value... Unless there was a transfer between family members.
Thank you. Yes, it is the approach my broker gave me too. I just want to know someone else point of view. I am planning to buy one more property after settlement just looking the best way to avoid to spend my savings. This new bank rule is complicating things for an investor.
To keep the most savings it would be get the highest valuation you can and borrow as much as you can. However the more debt the higher the repayments too . However if you use offsets you don't actually pay back more money. Say you had 20k in cash and were buying something at 100k (excluding costs) at 80 LVR. E.g. 80k loan @ 5% = 4k p.a. (20k used so no safety net unless you borrow again). or 80k loan with 20k in an offset (or 60k after offset) @ 5% = 3k p.a. with another 20k equity loan @ 5% = 1k... Total repayments are both 4k but one you have access to 20k should something happen. However you have to be able to service 100k loan compared to 80k. You can triple the numbers above or manipulate to your circumstance but the theory is there.
