Drawing down Equity



From: Glenn M

Hello all you budding Property Investors. This is my first post...have enjoyed the previous posts and discussions.

I have been to a number of Seminars lately that utilise the principle of purchasing an IP,rejuvenating/renovating and then having the IP re-valued.

The next step is then to draw down on the 'equity' (usually 80%) and use this as a deposit for another immediate purchase. So, do they mean that 'drawing down on the equity' means the establishment of an Equity Loan? Or am I just missing a basic principle somewhere?

Another quick question in regards to revaluing. Do all full (i.e not drive by) valuations usually cost around $500-$600? Have any investors successfully used the above-mentioned principles?

Thank-You in advance.


PS. I hope somebody out there answers me!!!!
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Reply: 1
From: Dave :)

Welcome aboard Glenn,

Regarding your first question, there are various ways to do this - not
just via an equity loan. Others in here such as Rolf would be best
qualified to explain it to you.

I recently used the equity in my home as a deposit for an IP purchase.
The property is re-valued by the lenders valuer. This is usually free
of charge and involves a drive-by valuation. (yeah, I know...accurate
as you can get, huh??) If they are satisfied your home is worth what
you estimated it was, they will lend you 80%, 90% or even 95% of this
amount for you to use an a deposit to secure an IP. The only do an
internal valuation/inspection if a drive-by reveals your property
doesn't quite value up. This happened in my case. They valued my home
15% under what I knew it was worth by simply looking at the front
exterior. I insisted they come in, do it properly and make their
valuers earn their money. With some gentle (not!) persuasion, they did
so. After they factored in extensive landscaping, a larger home,
stainless steel appliances, alarm, system, security doors, ducted
heating/air-conditioning etc, the second valuation was 15% higher than
the first.

If the lenders drive-by doesn't stack up - insist on a proper valuation
(free of charge) or tell the lender you're taking your business

Cheers and good luck Glenn,

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Reply: 2
From: Steve Navra

Hi Glenn,

Drawing down on your equity (growth since the last purchase / valuation) is possible and better still can be achieved without cost using various institutions. The Westpac "Rocket" product, has served my clients well, in that a 'proper’ valuation is performed, at no cost, so long as you accept the loan if it is offered to you. (Ahem, if they don't offer you the finance, there is no charge)

I advise that clients use an equity loan with an offset account, rather than cross- collateralize their existing properties. The reason for this is that it offers greater flexibility for future loan structure, uses only the equity that is necessary (which, keeps the banks honest!) and is less risky than offering the full equity available. (Especially with a security asset - like your personal home.)

Other advantages pertain to the use of the funds via an income stream, which effectively achieves further serviceability. (However, this is a subject that would require an in depth assessment, before implementation.)

Hope this is of assistance.


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Reply: 2.1
From: Jamie Smith

Hi Steve, you sound like you know what you're talking about, I've been to the same seminars and plan to implement the same type of plan. A quick rundown on myself and my plan.
I've a home worth approx 250k conservative,100K mortgage,no debt, married,1 child
twin income quite good, able to have approx 80K line of credit perhaps more to use as deposits on IP using deposit bonds as deposit and borrowing as much on property as possible even paying mortgage insurance. I like the idea of using the 55 day i/free credit card for living keeping my business funds as offset on mortgage, could you give me your advice or do you need more detail. Kind Regards Jamie
P.S I sent you a personal email as well, I hope you don't mind.
my address is jamie5@optushome.com.au
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Reply: 1.1
From: Samantha Lind

Got a fantastic reval on a prop yesterday. Full report, photos - the works. Valued my prop at 240K more than I paid for it and it cost me $225. This valuer values for the big 4 plus a few others.
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Reply: 2.1.1
From: Glenn M

Thank-You all for your replies.

Can somebody please compile a detailed list of the various ways of accessing equity as a deposit with the various pros and cons? i.e. Equity Loan, Line of Credit etc etc.
Rolf, can you please help me with this? (Refer to Dave's reply).

I suppose I better expand and give you the reason for my question......I currently own 4 investment properties (IO loans). The fourth property was settled only one month ago for $197,000 (2 bedroom apartment in South Yarra, Melbourne). I needed a method for borrowing 100% of the purchase price of this new property. The bank would provide the funding if the first three properties were used as security. I found this amazing as one of the properties alone had equity of $60,000. I'm sure if I had offered, the bank would have also used as security my parents, girlfriend, long lost relatives and the local milkman.....you get the picture!!!

Hmmm, traps to be wary of for the inexperienced player.

Hence, I'm sure there would have been other methods (not necessarily borrowing for 100% of the Price) of purchasing this property by providing a deposit derived from pre-existing equity.

Any further help would be appreciated.

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Reply: 1.1.1
From: Owen .

Hi Samantha,

Would you mind giving me a few details of who you used for your valuation. I rang around a bit last year and the companies were quoting figures like $1100 for each property which seems outrageous. You seem to have had some success so some info would be great as I'm in Sydney too. Email me if you would prefer.

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