Using equity to purchase new property.

Hi, first I'll give you some background information.

Last year my sister and I both inherited a house to share. I'm not going to specify where this house is, but we recently had it valued for 300k. The amount owing on the mortgage is just shy of $80,000.

Now I'm not a stupid person, I know that I can borrow up to $220,000 in equity to use on whatever I want. Anyway, I think we should buy an investment property with this extra money and use a portion of the rent to obviously pay back the equity borrowed.

My sister and I do not earn a lot of money, in fact, together it's not even 50,000 annually- She seems to think that there is no way we'll be able to afford the repayments that we'll incur by taking out this amount of money.

What are our options? We don't want to just sit on this house and do nothing. What are the advantages/disadvantages of buying multiple properties or a singular one?

My sister seems content in sitting on this house and watching the price rise, but I want to do something with it, help me decide my options. We're very new to the property market and young - < 23 years old.

Thanks for your help.
 
alex9050, it is pretty clear from an outside looking in view that you and your sister have different risk profiles. Being a male and < 25 only makes it "worse" :)
If you look long term this will cause nothing but trouble in your investing.
So my suggestion is that you sell-up & split the money between you - you go your way and leverage it up, she'll go hers and do whatever it is that ultra-conservatives do.:(
All the best with your investing.
 
alex9050, it is pretty clear from an outside looking in view that you and your sister have different risk profiles. Being a male and < 25 only makes it "worse" :)
If you look long term this will cause nothing but trouble in your investing.
So my suggestion is that you sell-up & split the money between you - you go your way and leverage it up, she'll go hers and do whatever it is that ultra-conservatives do.:(
All the best with your investing.

I can talk her into things pretty easily. I more just want to know our options, granted that is one. But is it possible to do what I'm talking about?
 
Borrow against it and buy a property you can renovate to add value and then sit on it. With the increase in equity then duplicate.
 
go online, find a calculator (eg, at the motgage choice website) and check out what your servicability would be (ie how much you can borrow).

Personally I agree with Prop on this one. You say you could covince your sister to do what you want, but I don't think you should if you value your relationship at all. Some people aren't cut out to be property investors, she may not be. Or she migt be, but in such a different way to you that i makes it impossible for you to do it well together.

My father is also interested in PI, and would love to do a joint venture with me - But our veiws, goals and strategies are just so different as to be irreconcilable (sp?). Thus I would never invest with him.
 
Your borrowings are serviced via rental income, tax back from your deductions and disposable income

What portion of the loan repayments are usually serviced by rental income?

I mean, what would stop us from using this money as a deposit for 5 different investment properties if the majority of the loan repayments would be paid via rental income?

Again, I'm sorry - I'm a complete beginner, I've been thinking about this for a while and it all seems so easy when talking about it, I've been reading a couple of books with almost nothing relevant to my situation so far - Any recommendations?

Maybe I should ask a more straight foward question.

I have $220,000 in equity through my PPOR. How do I get going in the investment property market / what sort of money do I need to be making as a salary beforehand to be able to afford such a loan etc. Where do I start?
 
Talk to a broker. He'll tell you how much you can borrow and what the repayments would be. Then find out whether you can pay that amount when interest rates are around 8%.

Do you budget? how much are you saving per month? you should have all these questions answered before hand. There's no point of getting a loan (if you can get one) if there's no discipline.

I'd agree with the others. sell and split the money.

good luck.
 
If I were you, I would firstly contact a loan broker. There are plenty on here, and all come highly recommended.

A broker will be able to take all your details and tell you how much you can borrow.

Then you can sit down with your sister and discuss what you have learnt. I also would not "talk her into" anything. It is her inheritance as well as yours, and I don't think you have the right to risk it, unless she knows the risks she is taking.

If she is not confident in going down this path, then you could look at other options, like using your half of the equity, or selling this inherited house and going on your own. You could buy her half of this house, but I believe she is better served to keep her half. Half a house is better than nothing.

Seeing that you already have some good equity in the inherited house, it seems a shame not to continue, but you have both got to be on board, and you both need to work out what happens if one of you wants "out".

Good luck. Keep reading, but call a broker so you have some idea of what you can afford, either on your own, or together.
 
Thanks for the replies guys, I'm not currently earning a whole lot of money, say 30,000 p.a, and I'm wondering about what you guys mean when you say 'What you could afford.'

Because I'm not sure I could afford a $300,000 loan, Also if I wanted to do this by myself I am sure I could take out half the value of the house as an equity loan and have it completely seperate to my sister.

Basically, I don't have a huge disposable income by any means, but I want to get into the property market with this equity that I've come across. Also, short of selling a property, how do you eventually make a profit from investment properties?

Would I still be able to afford an IP on such a low income? Given the rental repayments, etc.
 
Last edited:
Thanks for the replies guys, I'm not currently earning a whole lot of money, say 30,000 p.a, and I'm wondering about what you guys mean when you say 'What you could afford.'

Can you afford the repayments of a $500k property when the property is vacant? even with tenants?

Again, talk to a broker. There are plenty here. They will be able to answer all of your questions.
 
it's easy man.... use this as a guide

change numbers to suit & do the maths..

Purchase price + 6% purchasing costs = LOAN AMOUNT (say $318k)

Expenses

INTEREST Interest Rate (say 6%) x LOAN AMOUNT = $19080
COUNCIL RATES = $1000
WATER RATES = $1000
INSURANCE = $1000
MAINTENANCE = $1000
PROPERTY MANAGER= 2000

=$25080 EXPENSES pa

LESS RENT (?$300/WK) = $15600

= $9480 GROSS COST TO HOLD
+ $2000 Depreciation (great one, you dont pay for it, but you claim it)
$11480 Taxable Shortfall

x 30% Tax Rate
$3444 TAX RETURN

$9480 (Gross Cost) - $3444 (tax return) = $6036 Net Cost to hold
 
it's easy man.... use this as a guide

change numbers to suit & do the maths..

Purchase price + 6% purchasing costs = LOAN AMOUNT (say $318k)

Expenses

INTEREST Interest Rate (say 6%) x LOAN AMOUNT = $19080
COUNCIL RATES = $1000
WATER RATES = $1000
INSURANCE = $1000
MAINTENANCE = $1000
PROPERTY MANAGER= 2000

=$25080 EXPENSES pa

LESS RENT (?$300/WK) = $15600

= $9480 GROSS COST TO HOLD
+ $2000 Depreciation (great one, you dont pay for it, but you claim it)
$11480 Taxable Shortfall

x 30% Tax Rate
$3444 TAX RETURN

$9480 (Gross Cost) - $3444 (tax return) = $6036 Net Cost to hold

Thanks mate, I'm a second year engineering student. It's good to see stuff in numbers on here :D

So if it would cost you 6k per year at the moment, in this example, how would people be making money on this? Short of selling the house for more of course.
 
Over time you can redraw the equity out (via a line of credit loan) to live on tax free, or you could live on the rents, or a mix of both.
 
Have I missed the bit where it explained whether you are both single and content sharing the house in the short term? If not ignore this post.

If you are, do so until one can offer the other a deal which is win/win in a buyout and then separate your finances. As kin, your relationship is of paramount importance and should not be put at risk over an inheritance. It happens far too often. Neither of you are big earners and, to be frank, most of the gains in property are in the tax offsets by high earners.

So don't rush. Remember that all coins have two faces. In investment they are Profit and Loss. Both can come up.
 
Look that's a rough guide.

Rent goes up, or starts off more than I've said, your cost comes down...

A new house has higher depreciation so a higher expense, helping again

A cost effective renovation on a house might add more rent

etc etc

Sooner or later the rent should overtake the expenses

Of course the ide is that the place will go up in value. You then have equity you cn draw on and do it again.

That's the theory of it anyway

Sunfish's post is worth taking note of
 
Have I missed the bit where it explained whether you are both single and content sharing the house in the short term? If not ignore this post.

If you are, do so until one can offer the other a deal which is win/win in a buyout and then separate your finances. As kin, your relationship is of paramount importance and should not be put at risk over an inheritance. It happens far too often. Neither of you are big earners and, to be frank, most of the gains in property are in the tax offsets by high earners.

So don't rush. Remember that all coins have two faces. In investment they are Profit and Loss. Both can come up.

We are happy to share the house at the present time. There is more than enough room and we don't hate each other after a year.

I'm a student, so while I'm not a high earner now I definately have the potential to be in a few years - same with my sister, she's in a graduate position. But I've been reading this forum and it basically says BUY NOW, THINK LATER. Or have I completely missed the point?

Thanks for a different view.
 
Thanks mate, I'm a second year engineering student. It's good to see stuff in numbers on here :D

So if it would cost you 6k per year at the moment, in this example, how would people be making money on this? Short of selling the house for more of course.


In the example given it costs you $12K out of your pocket before you can net it back through the tax system. A common sleight of hand used by the spruikers (I'm not suggesting Jaycee is in that category) and brings plenty of people undone.
 
Last edited:
Top