Redraw, whats the deal!?

I've read much about living on equity, and would possibly like to apply this procedure at some point in the future.
But it seems much more difficult that one would think, and I'm almost angry that property experts state this is the main aim an investor should be striving for now that I'm interested in applying it and have discovered that it may even be impossible.

Apparently, I can't withdraw one of my property loans to 80% without mortgage insurance at the moment, only "possibly" redraw $10,000 without the lender asking questions. Says my broker.
This property currently sits at 66% LVR. and has approximately $135,000 equity. I was chasing $50k to capitalise for a rainy day, which would technically leave me at just under 80% LVR.

I have two questions.
1/ If one has lots of interest only loans, and at least one is lets say.. at 50%LVR, can they usually draw down to 80%LVR or more with LMI, no real questions asked?

2/ I don't quite understand that even on full doc right now, it's difficult to take a little of my profit. I'm thinking of changing strategy altogether and purchase property, hold property, sell property and repeat the pattern. Even though I'd be charged for CGT and agent fees.. which to me is a bit lame and I never wanted to ever have to sell a property.
 
Hi investor2009,

One question: Are your properties Cross-Collateralised?

Your redraw account is not an Offset Account and they do have limits as to how much you can withdraw at one time, as you are now finding out...

You should have an Offset Account. If properties are "tied" up in a mess of Cross-Coll....you will find the bank is valuing your whole portfolio's LVR and not just the one property you wish to draw funds from.

Regards JO
 
1/ If one has lots of interest only loans, and at least one is lets say.. at 50%LVR, can they usually draw down to 80%LVR or more with LMI, no real questions asked?

There are a lot more questions being asked than in the past due to the GFC and subprime mess in the states. So the number of low doc, or no doc loans that didnt ask too many questions are limited. Most lenders will now need a bit of an emplanation/proof of what the funds are to be used for when applying for cash out these days, whereas in the past they werent too concerned.


2/ I don't quite understand that even on full doc right now, it's difficult to take a little of my profit. I'm thinking of changing strategy altogether and purchase property, hold property, sell property and repeat the pattern. Even though I'd be charged for CGT and agent fees.. which to me is a bit lame and I never wanted to ever have to sell a property.

The model still works of refinancing and using equity to leverage into more property, its just a little bit more dificult than in the past. lenders have restricted policies and income tests which mean it isn't just a matter of rocking up to your local bank with some equity in your home and being offered money, it just takes a little more planning and research.

There most likely will be a lender out there who will let you do what you want to do. Switching lenders might involve a diferent interest rate, and or break costs etc. It may no longer be as appealing in the flesh as it was in theory, but I still reckon it beats selling and buying again with all of those costs involved.
 
And when you say "Its still ok to pull equity and buy again" I do know that and have been utilising the method for many years now but when it comes to pulling funds without a reason to use as income it gets tough..

Will this ease?
 
not in the short term.
Theres a couple of ways around it, with specific lenders. Might take the form of a statuatory declaration as to the prupose of the funds, or a financial plan prepared by a financial planner, that sort of thing.
How about using the refi cash to buy bonds that pay principal and interest over 5 years? that would give you extra income, and would fit most banks cash out criteria.
 
Actually investor2009,

I empathise with you.

When I first started my journey investing, I too fell for the living on equity trap. I did mountains of research - books, seminars and took advice from a successful investor who was doing it. (Mind you, I haven't had contact with him since the GFC.)

It is now something I personally advise against doing.

However, using your equity to buy again is different than living on equity. Extremely different. Living on equity assumes your cashflow is zero or negative and you need to refinance or draw down on equity so that you may simply "live."

As tobe mentions, there should be a way to access your equity if you do have an LVR of 66% - provided you can service your loan.

REDRAWING your equity to PURCHASE another property is completely different. :)

Regards JO
 
Income to support repayments is just as important as equity available when drawing a loan.

I would imagine the problem with living on equity is that, with no external income, lenders may be reluctant to advance money for living expenses.
Marg
 
Get a life mate, I tried to use it, but didn't because I couldn't..
It's not my only strategy. I could sell. But thats about it.
I won't be selling any time soon though.

If the investment gurus are using the strategy and implying I should too then I'm not prepared to say that it's my fault.
Possibly partly but there are so many who push the strategy such as Yardney. I believed this to be a great way of minimising tax and living off an ever increasing portfolio. Thats the reason I buy property. Now I'm a little frustrated to say the least.

Please don't imply I'm stupid though or you can take what you give.

You used a strategy without fully understanding it, thinking the lending environment wouldn't change. Whose responsibility is that, you reckon?
 
If the investment gurus are using the strategy and implying I should too then I'm not prepared to say that it's my fault.

They might have much bigger portfolios and lower LVRs than you do, and it may still be working for them.

Possibly partly but there are so many who push the strategy such as Yardney. I believed this to be a great way of minimising tax and living off an ever increasing portfolio. Thats the reason I buy property. Now I'm a little frustrated to say the least.

Please don't imply I'm stupid though or you can take what you give.

Stupid? No. Naive and impatient.
 
Y-Man,

That link WAS needed. It may have shown Investor2009 a few different perspectives.

JIT - Your memory is extremely efficient and I envy you. I knew this was sounding all too familiar.....

Regards JO
 
I still want to know exactly where he's getting his loans from ... I want one. We have our land clear on the 19th, then we can FINALLY go off and get a fixed price building contract, and then only finance stands in our way. Not sure how much difference things like $90k cash deposit $50k equity vs $150k equity and $10k income do to the bottom line on getting a ~$100k loan, I'm not a broker and brokers here seem to just say "can't do". Who can do?
 
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