Can you use your equity to buy a property and how much can u take out ?

My answer is yes, you are able to take out equity to buy an investment property/properties

I have someone I’m working with and giving them options on how to create a property portfolio.

I won’t say who there name but I’ll give you an example.

For example’ you have a property worth $800k

And you owe $400k.

You will have $400k In equity

Now how much of it can you use?

Short answer 80%.

It comes down to LVR (loan to value ratio).

Knowing your LVR is very important.

It’s what mortgage brokers use, financial advises, property investors or people who want to start property investing.

Knowing your LVR will help you in how much you are able to borrow to buy more property.

Now with the example above

800k property

owing 400k

the simple and easy way of how much you can borrow is 300k.

But you’ll probably say hang on I have 400k in equity?

Let’s break it down.

80% of the 400k equity is 320k this is the available funds you can use.

Generally when you extract 80% you don’t have to pay lenders mortgage insurance (LMI) to the lenders.

How to do the easy maths for LVR is-

Minus 10% of 400k is 40k, minus another 10% is 40k, 40k + 40k is 80k is the LVR.

WHAT YOUR LEFT FROM THE 400k EQUITY IS $320k,

$320k Available which means you can go out and buy more properties with 10% deposits.

Say you buy a property for 600k

10% of 60k plus all expenses, stamp duty, legal fees comes to say $80k.

Let’s say you take out the whole $320k.

With $320k You can buy 4 more properties with deposits and all expenses added.

Yes, your loan has go up on this one, but you are able to purchase more properties and build your property portfolio.

Say you go out and purchase other 4 properties worth 600k with deposits of $80k including deposits and expenses which will be a total of

4x600k = $2,400,000

Now let’s say you hold the original 1st property for 7 years, now this property has gone up to let’s say $1,400,000 so the math on this is-

Your 1st loan went up to 800k but now you have another 600k in equity.

Let’s say you decide to buy more property and use your equity again.

80% of your equity can be used again and you can buy more properties.

[Note] One thing to keep in mind the banks will not let you draw the equity out if you buy DUD properties.

So if the rental return is crap then the banks won’t let you draw out your equity.

This is where Truth Property comes in – don’t buy properties with rental returns under 5% because it is a formula and you will not be able to buy 10 – 20 properties (for example).

The formula is you need to purchase properties with high rental return in a future growth locations with low vacancy rates because you want it rented out a quick as possible, with the high yields.

This is what allows your borrowing capacity,

which in turn the banks will allow you, to take out the equity to purchase more properties and growing your portfolio overtime, securely and of course with a strategy because you can’t just go out there and buy 10-20properties without a strategy.

The banks won’t even lend you the money.

You got 2 issues when taking the equity out the component what you just read and making sure the 4 properties we mentioned above, need to have a high rental yields, because if they are low rental yields you will get stuck with finance.

You need to make sure your rental yield is between 5.5 – 7 percent the higher the better anything lower than 5% don’t bother.

You will find that, you won’t have any issues with lenders provided you go with the right lenders.

Obviously Your finances will still have to be in order and show an income from you job coming in.

Like I said having a high yield will help you continue to buy properties.

Want to get started with building a property portfolio book a free discovery meeting with me and see if I can assist you.

I hope message has brought value to you and some clarity in regards to LVR Loan to Value Ratio and how to draw equity from your current home.

Have a great day.