Taking Out Equity

[noodles]

I'm a little confused by the concept of taking out equity.

I understand that if you've been paying off the principal as well as interest in your own home, you will have equity that you can take out to invest in property.

What about if you've brought an IP on interest only? And you've held that IP for several years and there's been good capital growth. Can you use the capital growth portion towards a deposit on another IP?

 

[Peter_Tersteeg]

What about if you've brought an IP on interest only? And you've held that IP for several years and there's been good capital growth. Can you use the capital growth portion towards a deposit on another IP?

Yes.

It's all equity that can be used. One is create from paying down debt, the other is generated from growth.

How you structure the loans to access it will depend on the nature of the existing debt, property usage and what your plans are.

 

[Terry_w]

I'm a little confused by the concept of taking out equity.

I understand that if you've been paying off the principal as well as interest in your own home, you will have equity that you can take out to invest in property.

What about if you've brought an IP on interest only? And you've held that IP for several years and there's been good capital growth. Can you use the capital growth portion towards a deposit on another IP?

Don't think of it as 'taking out equity' but as borrowing money. To borrow money you will need:
1. Good credit rating

2. income from which to pay back the loan, and

3. Security for the loan.

Security for the equity taking will come from an existing property. Just remember the total LVR must be less than 80% or 90% - existing loan and new loans.

 

[Redom]

I'm a little confused by the concept of taking out equity.

I understand that if you've been paying off the principal as well as interest in your own home, you will have equity that you can take out to invest in property.

What about if you've brought an IP on interest only? And you've held that IP for several years and there's been good capital growth. Can you use the capital growth portion towards a deposit on another IP?

Yes - you can take out money from your PPOR or your IP - so long as usable equity is available.

As Peter mentioned, where you take your equity out from will have an influence on the loan structure utilised. For a PPOR, its best to set up a separate split (IO) investment loan.

Cheers,
Redom

 

[Jamie M]

What about if you've brought an IP on interest only? And you've held that IP for several years and there's been good capital growth. Can you use the capital growth portion towards a deposit on another IP?

Yeah you can.

Look at this way.

Let's assume you purchase a property for $100k and took out an $80k loan.

5 years later and your property is worth $150k.

You could take the loan up to 80% of that new value of $150k which is a loan of $120k. That's a $40k equity release ($120k - $80k = $40k).

Cheers

Jamie