Using equity to buy next IP

Hi there,
my wife and I are new to property investment .
We've got ourselves an investment property that has now got some equity in it and we are now looking to buy another investment property.
Having spoken to people, read others posts on Somersoft, and been to some property seminars, the "wise" thing appears to use the equity in the first IP to use as a deposit for the next IP. We have roughly $70,000 equity in our first IP.
The thing is, due to having a baby, it is only myself working now. As a result the bank will only let us access a small portion of the equity. With the LMI costs it doesn't make sense to take this small amount out.
We do have enough savings that we can use as a deposit, but because so many people have suggested not using "your own money" to do this, I'm hesitant. If I don't, then the alternative is to have to wait for what could be up to a year or two before my wife begins working again part time. Then we can tap into more of the equity and go from there.
Seems odd not to use the savings that are there already to move forward.
Your thoughts and suggestions are very welcome.
Thanks!!!
 
I'm not sure what your other numbers or balances are, but you could look at putting the cash into your homeloan (this reduces your non deductible debt and increases your serviceability), getting an equity release and then using that for deposit on next property.

Run it by your broker before doing so that you don't get trapped halfway through the process.
 
You generally shouldn't use you own cash as you would want to use this to pay down non deductible debt or buy private stuff. If you have no non deductible debt then it is not such an issue. But it might be an issue if you are renting and would want to buy a PPOR in the future.
 
A simple debt recycling strategy can solve this, essentially what DT is suggesting. Use your cash to reduce non-deductible debt then borrow it back as a tax deductible equity loan. The specific implementation depends on the various figures and what you're comfortable with, but if the cash is available it can be easily done.
 
Perhaps wait until you go back to full time work (if servicing is an issue)? Otherwise you may be paying massive LMI on the top up without any real benefit.
 
Hi hudbry

Do you have an owner occupied property?

I agree with Aaron in regards to waiting it out a little - a new bub coupled with reduced income is enough to deal with. Perhaps wait it out until you're in a more stable position to go again.

Cheers

Jamie
 
I think before engaging a banker/broker. Sit down, crunch your numbers. Can you maintain the current lifestyle/lifestyle you desire on one income with a bub on the way?

I believe investments should supplement your lifestyle to provide you an even better lifestyle for the future. Make sure your future family comes first before how much equity is avaiable etc!
 
Have an interesting question along the same path reducing non-deductible debt & increasing serviceability. I?m looking to buy an IP with the 20% deposit coming from current savings which is potentially around the 80-100k, however my wife has 150k non tax deductible land loan which we plan to build on as our PPOR in the future. She is on a very low income & therefore not possible for her to get a loan, not to mention planning a family in the near future so would be great to reduce non-deductible debt.

Question: Would it be possible if I transferred my intended 100k IP cash into her off-set land loan, which would help greatly with the current holding costs around 10k & then getting an equity release from her loan for myself to buy, can that be done even though the land is in her name & I plan to buy the IP in my name using my serviceability?
 
Question: Would it be possible if I transferred my intended 100k IP cash into her off-set land loan, which would help greatly with the current holding costs around 10k & then getting an equity release from her loan for myself to buy, can that be done even though the land is in her name & I plan to buy the IP in my name using my serviceability?

Because you are spouses you can leverage on each other's assets even if you aren't on title.
 
Hey Eddie

Seems doable given that your married.

Just get a broker/banker to run the numbers before proceeding.

Cheers

Jamie
 
Cheers Jaime & Aaron for the reply, that adds another option that could tick both boxes of reducing non deductible debt & still being able to invest! Had a chat to my broker after getting the replies & he said he will do the necessary inquiries but due to my work circumstances thinks likely the bank will want the loan to be in both our names.

The hardest part which is then finding a property that doesn't require too high of a holding cost but has good capital growth potential so I can keep allocating funds toward reducing the land loan & then have the ability to re-invest in the future. I might open in another discussion about location, thanks again guys.
 
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