How to access equity?

I own approximately 2.5 million in property by my estimated valuations (this includes my PPOR), which is nearly paid off with a value of $450-500k. I have a total mortgage debt of 1 million, leaving 1.5 million in equity.

My questions are probably very basic? But what are the steps required to access this equity? Can I just get my lender to revalue all my properties and then ask for a LOC for 80% of the $1.5 million? Is that the best option for accessing equity? Will I need to change each of the loans into a separate LOC? (I have 5 separate loans at the moment, all with the same lender). What other options do you use to access equity? Is there a preferred cost affective way of doing it?

Lacasa

Hiya Lacasa

With that type of hard won equity, id be contacting a specialist. Talk with a good independent broker to see how to make best use of that equity.

That much flush cash with the ONE lender may make them giddy :O)

Generally,what you are suggesting is pretty much right , but with that much float youd want some independent specialist advice that looks after you rather than your lender.

ta
rolf

hi Lacasa
access the equity is not a problem.
you need to give me a bit of an idea of what you want to do with equity and what you are looking at buying.
have a read of sitloti( search for it) and it give you an idea of how to unlock it.
with 1.5 mil of equity there are a lot of different ways of using it
you can .
say your loan is with nab
and the val is 2.5 mil and you owe 450k
you can loc say 400k = 850k with nab and bring suncorp in as a second with a lien or equity lend on the 1.6 mil
they would only lien to 80% and you lein that with another property that suncorp take a loan on as the deposit.
for serviceability you term part of the 400k( to cover the the short fall if there is any on the income from the property you are buying).
this is one of a lot of options and a very simplistic one.
the banks are example only and I don't work for either nor would I recommend either.
this is not advice and you need to work out first what you want to achieve before you can set a plan to achieve it.

Hi Gross

Where is the advantage to the borrower of doing a crossed first mortgage on the new prop(s) and a bunch of crossed second mortgages on the existing properties.

Versus say a separate LOC pull for each existing IP and thence a separate loan at 80 % to seccure each new property ?

Less loan statements and paper is one.................................but I cant see how that would counter- balance the downside of xcoll structures as proposed.

ta
rolf

If your PPoR is say $0 (or close )

That would give you around a 60% LVR wouldn't it?

If you accessed the equity and took it up to just under 80% (say 76% or $400,000) you could potentialy control a;

• $480,000.00 Share Portfolio
• $800,000.00 Property (or maybe 2x $400k)

Giving you a $3,780,000.00 portfolio

Hi Gross,
why would you access in such an awkard way?

There are much more elegant (or sexy as Rolf L would say) ways to access equity and use such equity for further purchases.

Lacasa, you may want to talk to a broker that understands property investing.

Thanks all for the replies.

I'm basically looking at accessing the equity in a LOC or other type of loan while I am employed, so as to avoid all the no-doc paperwork, explanations etc should I need a loan while between contracts/jobs.

The ultimate plan would be to LOE, but I need to learn a lot more about that at this stage. In the mean time I want to make my dollars work harder. i.e. some into shares, managed funds, IP's etc.

Just wanted to make sure that all I need to do in regards to accessing the equity is to basically refinance the existing loans into LOC.

Lacasa

hi all
the major difference to using loc and using equity depending on how you se it is if you just use loc you won't be able to max the loc because of serviceability at say 2.5 mil a lender will want you to have an income of over 450k per year to service the loc ( whether you use it or not you must show how you will service it) were as if you use the equity on a second project you need to show how you can service the second loan.
this is a very big difference.
there are lots of ways to show how to service the second loan where as it would be very difficult for most to show how to service a 2.5 mil loc or even a 2 mil loc hence its alot easier to service a 450 + 450 loc loc and use the equity.
you don't need lots of cross x coll in this case you only need one at a time to unlock this 2 mil equity to what amount is up to you.
most people don't like xcoll because they have not set them up right in the first place correctly
if the have been setup and are individual for specific project they work very well and are alot cheaper then locs and you don't have the serviceability issues that locs have and as Lacasa has all these loans with the one lender serviceability would be a definate possible problem.
if you equity liened one property to new ip the serviceability is not an issue if you went with a new lender for the new ip.
Lacasa one of the reasons I ask, it depends what you want to do with the equity
it does make a big difference to how you structure to take the equity out and there maybe elegant or sexier was to do.
those I don't know as finance I don't find that sexy
but when you are in it most days you find that edge is taken off a little bit.
there are alot of perthites that have got very large increases in equity and it can be used very well but you need to make sure that your house is in order before removing that equity and going on a spending spree looking for property.
I would be looking at ways to refinance with a different lenders slowly if you decide on locs to avoid the finance wall.

Grossreal,

Not 100% sure if I follow all that info? Do you mean something along these lines:

A) If I go with one lender and draw down a LOC for 80% of the 1.5 million in equity I have in all the properties, I should be able to access 1.2 million. For me to pay a 1.2 million loan I would need to earn XXX amount of dollars in income to service that debt plus the existing debt in the mortgages, which would equal an amount of 2.2 million. Is this what you mean about structure and that I would need to earn around 450k a year to service all the loans? Don’t they take into account the income in the investments as part of you total income?

B) If I go with several lenders and draw down a LOC from one property at a time, invest in an IPs as a separate structure each lenders will only be concerned with serviceability for that loan? Don’t I have to tell them about my other liabilities? Is not the end result the same if I drawdown on all the possible equity in all the properties?

hi Lacasa
I will answer in red
Not 100% sure if I follow all that info? Do you mean something along these lines:

A) If I go with one lender and draw down a LOC for 80% of the 1.5 million in equity I have in all the properties, I should be able to access 1.2 million. For me to pay a 1.2 million loan I would need to earn XXX amount of dollars in income to service that debt plus the existing debt in the mortgages, which would equal an amount of 2.2 million. Is this what you mean about structure ( no the structure is a system to invest and this is used spread not only your equity but also can be a multipul micro structure used for tax, diversification, and protection)and that I would need to earn around 450k a year to service all the loans? Don’t they take into account the income in the investments as part of you total income if the loc is on your ppor house not as a rule?

B) If I go with several lenders and draw down a LOC from one property at a time, invest in an IPs as a separate structure each lenders will only be concerned with serviceability for that loan( if the structure is setup right yes)? Don’t I have to tell them about my other liabilities (again it depends on the structure and no you don't if the structure is set up that way it depends how its organised)? Is not the end result the same if I drawdown on all the possible equity in all the properties (no it won't be
the cost to repay the lenders is the same
but from a tax, liability,and holding point of view they are very different and thats why you need to set this up first your structure
and your structure and my structures are very different and should never be the same because you goals and my goals are just as different
these structures are not just to remove equity they are a system that is used for your investing and are very important to be setup correct from the start
with regards to letting lenders know all liabilies this is only an issue for the entity that is borrowing
and you can lend equity from one entity to another entity

and entity 1 ( with the equity) does not have to give any information about its financials to lender for entity 2 the borrower of the equity

the lender only requires that entity 1 does allow the second mortgage for the equity and entity 1 does not have to sign for the loan of entity 2
as it is only lending the equity and can even charge a return in interest if it wished again it depends on the structure,
(this is very good if you are developing as you can charge an interest rate for the use of your equity that you put into a project if the entities are separate and different but this is a side line issue)
I look at these structures very similar to chemistry atom chart where you keep adding micro structure to your structure and can be very interesting.?
Yesterday 10:36 PM
grossreal hi all

G'day Lacasa,

This comment had warning bells ringing for me:-

Lacasa said:

If I go with one lender and draw down a LOC for 80% of the 1.5 million in equity I have in all the properties, I should be able to access 1.2 million.

Click to expand...

Oft forgotten (or mis-understood) is the fact that 80% is NOT usually available on the Equity. As an example, if I was purchasing a PPOR worth $400k and had a $320k loan against it, I am ALREADY AT 80% LVR. Thus, I cannot draw on 80% of Equity ($80k) which would be $64k.

In your case, I would think you could draw up to $1m (nice figure that!! ) but not $1.2m unless you wanted to stretch up to 88% - and pay the requisite LMI.

I agree with the early posters. Contact a Mortgage Broker (from the Forum if you like) and lay it all out. They will point you in the best direction. Haven't heard of one in Perth yet. But there are a number on the Forum in other centres - have heard good words of all, and bad words of none.

Regards,

hi les and Lacasa
rob from mortgage gallery is in perth and does alot oif the coast doing broking and also uwe is there and both are posters or lurkers here.
they may leave a message so you can get in touch with them.
kph would have both there email addresses.

Lacasa said:

I'm basically looking at accessing the equity in a LOC or other type of loan while I am employed, so as to avoid all the no-doc paperwork, explanations etc should I need a loan while between contracts/jobs.

Click to expand...

Lacasa,

The advantage of a No-doc loan is as the name suggests - there is NO supportive incomes, assets or liability explainations needing to be declared.

Are you aware of this?

Gross/Less,

I see from this brief link that I need to learn more about structuring and what I can do with the equity! I will look at some independent advice when I get back from o/s.

Rixter,

I used a low-doc loan many years ago...all I remember was that the interest rate was about 2% higher at the time. I guess what you are saying is that I don't really need to worry about a LOC before my job ends, as there are now a lot more options not requiring to show work history etc?

Thanks for all you comments.

Lacasa

Lacasa said:

Rixter,

I used a low-doc loan many years ago...all I remember was that the interest rate was about 2% higher at the time. I guess what you are saying is that I don't really need to worry about a LOC before my job ends, as there are now a lot more options not requiring to show work history etc?

Click to expand...

Yep, things have changed alot since then. No-docs & LO-docs are much more competitive with the verified loans nowadays.