Do I need to wait?

[WebBoard]

From: Nic Hutty


Hi all,
What percentage of equity do you advise a person has in their own home before they invest in other properties?
I already have one investment property and both my properties are secured together and financed at about 93% of the P/I loan.
What is the best action to get me in a position to buy other properties? Is there anyone that can help me with strategic planning?
Hutty

 

[WebBoard]

Reply: 1
From: Neophyte .


Nic,

Have you had the properties for very long, is there any capital growth in them so far?

If so you may be able to get them revalued to bring your LVR down.

eg. if you bought the place for 100,000 this time last year with 5% capital growth then the property is now worth $105,000. This means that your equity is equal to whatever you've paid off plus $5,000. But only if you get the property revalued by one of the lending institution's approved valuers.

If this is the case then your LVR will have dropped from 93%. You still may have to wait and the revaluation will cost you a few hundred dollars, so you have to make an estimation of whether to try now or wait for capital growth and compounding to kick in some more.

regards
Paul

 

[Mike]

Reply: 2
From: Mike .


Hi Nic,

When there is a property boom on you should by property, if you can afford it. If you can't afford to or the market is flat, then pay your non-taxdeductible loan off as quickly as possible.

As to when to buy again: Jan Somers' advice on page 161 of "Building Wealth through Investment Property" is to maintain your Assets:Liability ratio at 2:1 (LVR=50%).

She says: "Although one particular property at any one time may have a high loan-to-value ratio (LVR), overall, the properties you have bought earlier should balance out the ratio to 2:1. This means that if you own $1 million worth of property, your total loans should be about $500,000 (net worth would also be $500,000). It doesn't matter if it's more or less at any particular stage (and it probably is less than this in the early stages), it's just a guide to help you keep your debt in perspective."

Me again: I recently bought my 3rd property. My financial situation before this was as follows:
Prop1: Loan=$70K; Value=$265K
Prop2: Loan=$196K; Value=$220K

Therefore, Total LVR is 266K/485K=54.8%

Prop3: Loan=$250K; Value=$240K

Now, Total LVR is 516K/725K=71.2%

My strategy now is this: When capital gains increase the total value to 935K, then the overall LVR will be approx 55%. Based on that I will be able to secure another loan for $200K+. Time to think about buying again. Of course, timing should always coincide with the start of a market upswing.

Regards, Mike

 

[WebBoard]

Reply: 2.1
From: Nic Hutty


Thanks for your replies.
Mike your strategy sounds well balanced and sensible and I will take it on board.
Nic