When do you think you have enough equity?

Discussion in 'Investment Strategy' started by dodger21, 9th Oct, 2017.

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  1. dodger21

    dodger21 Active Member

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    Hi,
    I'm a newbie to PC but slowly getting through all the previous posts in the forums.
    My story is...I lived in Sydney all my life and purchased a house there 12 years ago. I moved to regional Victoria for work just over 12 months ago and now rent out my Sydney property.
    The Sydney property would be worth about $1M. I still owe $400k on it.
    I bought in regional Victoria and still owe $274k on it.
    When I did my tax return this year, my tax agent said to think about buying another investment in the next 12-18 months.
    So I went to the bank today to see what the equity figures looked like.
    They said 74% of my Sydney equity will allow me to borrow $157k.
    My question is this:
    Do I wait until my borrowing power increases in the next few years? Or do I find a unit somewhere now for about $150k?
     
  2. Jess Peletier

    Jess Peletier Mortgage Broker & Finance Strategy, Aus Wide! Business Member

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    Hi Dodger,

    There's a couple of confusing points in your post -
    • Why 74% equity? Normally we'd take it up to 80% and avoid LMI, 74% is a bit of an odd number.
    • You can also use rental income to calculate your borrowing capacity for the new IP, so I'd be surprised if you were limited to just a portion of the equity, especially if your tax guy is recommending an investment, presumably to reduce your tax.
    Get a decent broker to have a look for you - you may be able to do much more than you think.
     
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  3. dodger21

    dodger21 Active Member

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    Hi Jess,
    Thanks for replying.
    He did say I can go up to 80% equity, but he did 74% just to show me. He said 80% would increase the borrowing capacity by about $20,000.

    He also said if you buy get a rental appraisal first as that will affect how much I can borrow.

    I just don't know whether to wait a few years until I pay it down more and have more equity, or whether to look for a $150k investment
     
  4. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    sounds rather confusing to me ?

    Equity and serviceability/borrow capacity are 2 separate things, and while both need to be met, you may be well served to pull some equity loan (say 25 % of the IP value) from your current lender and use lender X for the majority 80 % loan

    ta
    rolf
     
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  5. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Still sounds strange to me. Go to a broker like Jess and get the real story.
     
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  6. Jess Peletier

    Jess Peletier Mortgage Broker & Finance Strategy, Aus Wide! Business Member

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    What you may consider doing is using the equity as a deposit, rather than the whole purchase and get another loan for the balance of the purchase. This will allow you to purchase a higher priced property.
     
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  7. chindonly

    chindonly Well-Known Member

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    74% of your $600k equity in the IP is a lot more than $157k?
     
  8. kierank

    kierank Well-Known Member

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    I would be drawing equity out of this property up to 80% LVR. That is, 80% of $1M => $800K. You have already used $400K; so you have $400K left.

    Taking this spare equity as a deposit and with a LVR of 80% again, you could buy property up to a total value of up to $2M. You need to look at it from a serviceability perspective, as I imagine that will be your limiting factor.

    As others have already stated, go see a MB who knows their stuff.
     
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  9. eletronic_exp0430

    eletronic_exp0430 Well-Known Member

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    These days its not just LVR. You need to be able to service the loan. How much money do you make and whats your overall cashflow position?
     

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