Browse Forums Real Estate 1 Aug 21, 2014 11:58 pm Hello all, Currently living in my first home that I've purchased and my wife and I have been talking about getting another house, or at least renting out this house. I'd like some advice. We currently have about a decent level of tangible cash and we also have about $130,000 in equity on our home. I'd like to know how the equity works when I'm purchasing another property, what role it plays and how it effects my current mortgage. Some people have said I can use my house as a security deposit of sorts on another house? They also said something about not having to pay the 20% deposit because of this, but that didn't sound right to me. Please offer any and all advice in regards to this that you feel you would like to. Thanks very much in advance, Kind regards, tecstar Re: Seeking some advice as a single homeowner 2Aug 22, 2014 5:30 pm Ok lots of variables here so a few questions to clarify- Is the equity in your house in an offset account or redraw? This makes a difference. If you are thinking about renting out your house STOP paying it off NOW. PGet an interest only loan and put the excess money in an offset account (not a redraw). Especially if you plan to live in the new property. You can get a Line of Credit (LOC) or a loan against your house to use as deposits when buying other property. That way you borrow 80% against the new property and avoid paying LMI (lenders mortgage insurance). If you care to give more info people can give more diffinative answers. Keep asking questions if you don't understand anything. That's where forums are great. But always get proper advice from proffessionals of course. Re: Seeking some advice as a single homeowner 3Aug 22, 2014 6:11 pm Good advice from travelbug. You need to read as much as you can and any book by Jan Somers is good. Also subscribe to Australian Property Investor magazine. You can even claim it on your tax! Also buy as many back copies as you can and religiously study the personal profiles. http://apimagazine.com.au/subscribe/subscribe-to-api You can get finance packages that entitle you to interest discounts if your borrowings reach a certain level. The package should include free redraw on your own home's advanced payments and you should also have an off set account AGAINST YOUR OWN HOME, you should borrow as much as you can to qualify for the package. An 0.8% discount is standard but you can easily get this up to 1%. The package should also include a free credit card plus other benefits and you should use the card whenever possible and have it automatically paid off every month. Don't be worried about living in your worst house, it's a wise move provided it is in your preferred location, is comfortable and has land content. Once you get a few houses if you go down that path, having a big garage comes in very handy. Also do your research about the best lenders, API surveys will help here. Principal repayments on investment properties are not tax deductible, only interest payments. Having interest only loans gives you lower repayments and this is the only type of loan you should have on an investment property. Have landlords insurance and use a good property manager. Look after your good tenants. Remember: Land appreciates, buildings depreciate. Always concentrate on land content. Property investment must be considered a business decision. There are many ways to invest in property and you need to find your own niche. Don't be one of the herd and do what everyone else does. I hope that the following applies to you but at the end of the day, you need to use the money for positive purposes. Making money is just a way of keeping score, people need to leave their mark and money is just a tool that gives you a greater capacity to do this. 3in1 Supadiverta. Rainwater Harvesting Best Practice using syphonic drainage. Cleaner Neater Smarter Cheaper Supa Gutter Pumper. A low cost syphonic eaves gutter overflow solution. Re: Seeking some advice as a single homeowner 4Aug 23, 2014 5:06 am travelbug Ok lots of variables here so a few questions to clarify- Is the equity in your house in an offset account or redraw? This makes a difference. If you are thinking about renting out your house STOP paying it off NOW. PGet an interest only loan and put the excess money in an offset account (not a redraw). Especially if you plan to live in the new property. You can get a Line of Credit (LOC) or a loan against your house to use as deposits when buying other property. That way you borrow 80% against the new property and avoid paying LMI (lenders mortgage insurance). If you care to give more info people can give more diffinative answers. Keep asking questions if you don't understand anything. That's where forums are great. But always get proper advice from proffessionals of course. I may have misused the word equity, I mean, say my loan is 294,000 and it's valued at 440,000 am I correct in assuming the difference is equity? I have all my savings at the moment in an offset account against my loan, but it is not interest only, I'll look into that tomorrow during the day. Can you please explain what you mean by redraw as opposed to offset to me? Thanks very much, I appreciate all the advice I can get Kind regards, tecstar Re: Seeking some advice as a single homeowner 5Aug 23, 2014 5:12 am SaveH2O Don't be worried about living in your worst house, it's a wise move provided it is in your preferred location, is comfortable and has land content. Once you get a few houses if you go down that path, having a big garage comes in very handy. My current house isn't in a great location for my family, and it's one of the reasons we've spoken about renting it out and moving closer to the city. (my university and work is in the city). I've already found the use of a big garage with lots of shelves and roof storage ! SaveH2O Principal repayments on investment properties are not tax deductible, only interest payments. Having interest only loans gives you lower repayments and this is the only type of loan you should have on an investment property. That makes a lot of sense, I wouldn't have considered that prior to this, thank you! I've had a few people (mortgage broker, bankers etc) tell me I need to do this and this is best, but I didn't take their word for it because they all have some vested interest in earning money off me.. I currently have a principal and interest loan because a year or more ago I wouldn't have considered moving to another property so soon. But I will definitely look into changing to interest only tomorrow. Thanks for all your feedback, I really appreciate it. The links are great too, I will look into all this. Thanks again! Looking forward to keeping the Q&A up ! Kind regards, tecstar Re: Seeking some advice as a single homeowner 6Aug 23, 2014 11:19 am tecstar I currently have a principal and interest loan because a year or more ago I wouldn't have considered moving to another property so soon. But I will definitely look into changing to interest only tomorrow. You can also get loans where the interest rate is locked in for a number of years of your choosing. Interest rates are exceptionally low at the moment and locking in a good rate for several years is a wise choice because it is very hard to see interest rates getting any lower. I would also look at changing your loan when you get your other loan and not now if you think that you will be eligible for a package. You need to do some research here to determine what's best for your situation. As an aside, I initially went through a broker but it was a big mistake...very amateurish and I think that was for the first 3 investment properties. Once I became more aware, everything was put into the one package but I was lucky there because the bank I was with had the best package. Nevertheless, by following the pack I was initially paying 0.8% more interest (my initial discount) on the first 4 properties (1 x PPR + 3 x IPs). Had I known better, I would have maxed the borrowings on the second IP to get the package. With the offset, borrowing more would have saved me a lot plus I was also paying principle and interest on IPs thanks to the broker! I hope that you can benefit from my mistakes. 3in1 Supadiverta. Rainwater Harvesting Best Practice using syphonic drainage. Cleaner Neater Smarter Cheaper Supa Gutter Pumper. A low cost syphonic eaves gutter overflow solution. Re: Seeking some advice as a single homeowner 7Aug 24, 2014 10:39 am You have the equity term correct. Equity is the value of the house minus what you owe on it. But unfortunately this is not the amount you can borrow. Using an 80% borrow you can borrow 80% of it's value. So $440K X 80% = $352 - the amount you owe ($294) = $58 you can borrow. You can use this for deposits, legals etc and borrow 80% against the new IP. If you want to live in the city it may be financially better to rent there and buy an IP (Investment Property) in a higher yielding area. Rent is not dead money if you are investing the extra money more wisely than you would by buying a PPOR. In "better" areas the yield is generally lower thyerefore it is cheaper to rent there. You can get better cash flow by buying 2 cheaper properties and getting high rent than buying a home to live in. Check out your area and crinch the numbers. Can you please explain what you mean by redraw as opposed to offset to me? A redraw is a loan whereby you have to pay a certain amount each week/month. Any extra money you have goes in to the redraw and you are in fact paying down the loan faster. If you need the money you can ASK your bank to lend it back to you. Now usually this is not a problem but if you lose your job for example they may say no. An offset you pay off an amopunt each week/month etc (same as above) but your extra money goes in to an offset. The offset is YOUR money that you are just parking there (to save you interest). You can take it out ANYTIME you like (no asking). See the difference? Also, say you want to turn the property into an IP (investment). If you taike the money outr of the offset to buy (say) a car that money is NOT tax deductable. 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