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How to Buy a Second Property with No Deposit
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- Опубліковано 18 сер 2024
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Is it possible to buy a second property with no deposit? In this video, you’ll learn everything you need to know about buying a second home and renting the first, from using equity to buy a second home to what you need to pay in stamp duty.
00:00 How to Buy a Second Property with No Deposit
01:43 1: How Do You Leverage The Equity In Your Home To Buy the Next?
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jayden.vecchio@huntergalloway.com.au
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How much deposit do I need to buy a second house?
Can I buy a second house with no money down?
How does equity work when buying a second home?
Can I buy an investment property without a deposit?
Depending on your circumstances, one option you might want to consider is keeping your first home as an investment property. Although there are often emotional reasons for holding onto your first home (perhaps it’s where your children were born), it’s important to make sure the numbers stack up as well. Here are some important points to keep in mind.
Does your home have rental appeal?
First things first - what sort of rental return could you get on your home and how easy will it be to rent? When you bought your home, you were likely focused on finding a place to live rather than what its appeal would be to a wider rental market. Take the time to think about how it stacks up for potential tenants. Is it near public amenities such as shops or transport, or does it have “quirks” that would put potential tenants off?
It’s a good idea to reach out to property managers in your area to get an idea of the rental appeal of your place as well as an indication of what it could rent for.
It’s also important to consider the potential rental yield of your investment property as this will influence the amount of cash flow coming in which can be used to service your loan repayments.
What’s the potential for capital growth?
If you intend to sell your first home further down the track, do your research about capital growth trends for similar properties in your area, keeping in mind that previous sales aren’t a guarantee that prices will remain on the same trajectory. It’s important that you also weigh up any capital gains tax considerations should you intend to eventually sell - make sure you seek out the appropriate professional tax advice for your circumstances.
The six year rule
As the name suggests, the six year rule means you could rent out your primary place of residence for up to six years and keep its capital gains tax free status. Once the six years has past, the Australian Tax Office (ATO) would treat your home as an investment property, meaning it would be liable for capital gains tax should you eventually sell it. Once again, it’s important you get professional tax advice to understand all the details as well as the personal implications of this for you.
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For more info www.huntergalloway.com.au/using-equity-to-buy-a-second-property/
I love how you explained this. Very straight forward explanation. Thank you.
Thanks for watching!
Great video :) Be good to see a video on the benefits of keeping 1st home when buying another (I understand you guys have done this previously).
Hey Stuart, yeah great idea we'll look at doing a more detailed breakdown on this in a future video! Thanks for the suggestion! Cheers, Jayden.
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Thank you so.much, I am a firstbime buyer and you have explained this so well. Thank you
You are so welcome!
You cant get cash out from your current home loan and use towards second home down payment right away! The 2 transactions has to be 12 months apart
Hey Oanh, some banks require you to space this out - but not all so you can go again within 12 months. Cheers, Jayden.
Hey guys I actually just bought my first investment property two months ago. Your videos are absolutely superb.
Congratulations Richard and thanks so much for the feedback!
Awesome video! Thank you 😊
You are so welcome!
Can you please do a video on the interest rates associated with using equity? Every video I've watched make it sound like you just get this free equity to go towards another place but they don't talk about the actual cost of using that equity which is in the form of interest repayments (from what I can tell...) any info on this would be appreciated!
Hi @Michele Lim, thanks for the suggestion. Will put it on the pad 😊
With equity, just think of it as a home loan. Therefore, if you borrow 100% of a property that's worth $500,000. Then your loan amount would be $500,000 even if it was split in two portions, say $400,000 and $100,000. The interest rate on both loans would be the same (if it's with the same lender, rates can differ if they're with two different banks).
Hope this makes sense and helps 😊
So, referring to that example in the video, the equity from property #1 essentially allows you to borrow more to cover the deposit etc. for property #2. So, you would still pay interest on the $100k loan from property #1 and interest on the $1.1m for property #2 $300k equity + $800k loan). Is this correct?
Simple and to the point - love your videos! What if the outstanding loan is nearly 80% of the property value, any chance that bank still fund? What other best options to pursue?
Hey Siva, thanks so much for watching! Yes it is possible - depends how much cash/savings you have to contribute. There are certain circumstances where the bank will let you go above 80% but then you will pay HEAPS of LMI so it doesn't usually work out financially. Happy to run the numbers in your situation to see what works - hit me up at huntergalloway.com.au Cheers, Jayden.
What about ensuring the loan is positively geared? Yeah you can take out equity but if the rental return isn’t covering the mortgage of $1m then it ain’t a wise investment. You’ll just drown in debt
Very true!
Equity is a great tool to build wealth 👌
Couldn't have said it better myself haha! So true thanks for the comment! Cheers, Jayden.
Does this mean there will be three active loan. $100k - $300k and the $800k ?
So the bank will allow me a loan for $300k then the $800k too ?
Awesome video, I just purchased my first home in Melbourne using most of your helpful and informative videos as guidance throughout the process, now I'm learning on how to move onto a second house as an investment down the track. Just a question, if I release equity from my first home for a deposit for a second house in the near future - there is interest right? and I would have to get another loan to pay off the rest of the property, so that is two loans with interest for 1 house? Thanks
Congratulations and wishing you all the best... Yes, that's right. You'll have two loans and pay interest on both.
Apologies if this has been asked before but how do I know how much can I get as loan for the next property. In your example in the video, how do we know that the person can afford a second property worth $ 1m? Because if I got this right, the person will have to pay out $100k from the first property (existing loan)+$800k from the second loan. Thats considerably more than the $100k of the initial loan and before they buy the first property. Technically they have 300k of equity from the first property which can be used against the second property, but still its a lot more: $100k+$800-$300 = $600k. Is this correct? In all examples (including those on the website) I found that the total loan value (property 1+2) has materially increased. sorry if its a silly question.
Hi Steve, yes the $100,000 (existing loan) will either stay as is or be refinanced. Based on the property being worth $500,000 at 80% the maximum loan they can leverage is $400,000. So for this property, they've leveraged the $300,000 in equity they can access and as such have put it towards their new purchase.
For the purpose of this video we just focused in on the equity position. Rather than complicating things with responsible lending requirements, servicing, eligibility and all the rest which comes along with the lending landscape.
In total it will be $100,000 + $300,000 + $800,000. With new lendings being $300,000 and $800,000 (in total $1,100,000). This is what's used for the purchase of the $1,000,000 property.
No problems at all, hope this answers your question.
@@MortgageBrokerAustralia This makes sense and its now 100% clear. thank you for taking the time to reply and indeed for making so useful videos
@@sotirisroutis5751 pleasure, thanks for watching!
So just to confirm using equity in my home to borrow 100% of the value of an investment property isn't the same as cross collaterlisation? Why would the bank set it up that way if it's bad? If I am using equity for to borrow 100% of a property (not cross-collaterlsiation), does this have implications if I want to buy a third property in the future?
Hey Edward, you can have the properties structured as stand alone - or completely seperate. Think of it like having each property at a different bank - You can borrow the 20% deposit (assuming you have equity) against your original home.
And then you can borrow 80% against the new investment property - in effect borrowing 100%! Cheers, Jayden.
Does it make a difference when using equity to buy my next house if I don’t actually owe anything on the house I live in. I own the house I live in outright.
That's even better, means there would be heaps of equity!
Man I still don't get the equity equation explanation.. ahhhhh so frustrating.. plays with my head... Is the equity the amount I owe already on the property??? Can someone please workout this scenario for me?
My house is currently valued at $600K. My mortgage loan is $270K. My house was bought 4 years ago at $300K with a $30K 10% deposit.. over the 4 years my loan is now down to $250K from $270K.. Whats my Equity now?
Thanks Feta, the equity is calculated based off the property value at the lenders maximum lend which is 80% or 90% of the property value less the current lending owing.
Just pretend the current value is 80% of actual. Then minus the outstanding balance of ur loan = equity
So you’re 480k - 250k = 230k equity
@@AntonioToomalatai thank you got it
a percentage of what you already paid,its on your mortgage statement under equity
So what happens if you can't pay the 2nd house? Do you now lose the first one too Cause you leveraged the 300k equity in that property to buy the 2nd property? Or as long as you can pay the 300k + 100k for the first property, you are good even if you lose the 2nd property (can't pay it)
Hey Ria, yeah potentially if they are cross collatoralised so you want to try to stay under your limit - more info www.huntergalloway.com.au/cross-collateralized/
Great informative video! Couple questions;
What about leveraging equity to build a second property? is this possible? as i assume the only reason you're able to get the loan for the second home will be the rental income to make the repayments. also once you have your second property without anymore equity in either home you would be at a stand still for your third wouldn't you? is there the option of loaning 90% equity on property one and two leaving 20% for the bank? assuming doing this would generate enough equity to get a deposit for the third?
Hey Jason, yeah great question. Its completely fine to leverage equity from your first property to build a second property.
When you are construction a property, although it might take 6-9 months to build the bank does the calculations on your end financial position - i.e. you'll move into that newly built place in 6-9 months time, and rent out the old property so that is fine.
You can also look at doing LMI on say the old property, so say lending 90% against your 1st home and then only borrowing 80% against the new purchase/construction.
Will the banks alway want to cross-collateralise your loans first? Do you specifically need to request they be seperate?
Yeah the banks generally have this as their default position - its also less work for them, they put it all onto the 1 application rather than having to do 2 seperate applications. More work for the bank = better outcome for you.
Which is why you go to another bank to get the remaining of the loan required
I am confused about the equity and if you "unlock it " does it become another loan to pay or is it imaginary and that if you don't make the payments the bank takes 1 or both houses repossessed??
I own 2 houses and I was thinking rent can pay for anything new " ?
Thanks James, some good questions and might be best to check out this video that also explains it in more details ua-cam.com/video/mp0iwG9ly_Y/v-deo.html
Thanks very much
Great video. How to extract equity if one already used up his salary to service the existing loan repayment? we need rental income to secure the equity loan approval? If it is the case, how to get the loan for the next property, seems the bank is reluctant to lend money for the rent reliant investment.
Thanks for watching Michael, this is a tricky one. As the banks will require to see an ability to repay the funds borrowed. Totally agreed with you, the banks can be super conservative.
Hi my daughter bought her 1st home 7 months ago but wants to buy a 2nd home with the gift I gave her of $30,000 is it wise for her to go to 1st lender she used or can she go to a different lender for the 2nd home? Will the 2nd lender verify info from the 1st lender or is it kept private. I'm asking because I don't want the two mortgages combined. I want seperate payment. Will the original lender verify all her info again?
Great question, this is where a mortgage broker can add value here and structure the lending to ensure the properties aren't cross collateralized (see: www.huntergalloway.com.au/cross-collateralized/). Happy to review also if you'd like us to review run through the strategies to structure the lending to be optimised to reduce risk and maximise ability to continue to invest both now and in the future: www.huntergalloway.com.au/contact/
Seeking some advice please. I am wanting to buy a second home to move into. The first home is rented out.
The first house was valued at 110,000 and I owe 84k on it. The new house will be valued between 100000 and 110k. Could I get a 100% mortgage using the equity alone?
Hi @Shirley, based on these figures depending on the specific details you'll have between $12,000 - $15,000 available in equity (this is for your home valued at $110,000). Hope this helps :)
@@MortgageBrokerAustralia Wouldn’t she have 88,000 in equity ? If 80% of 110,000 is 88,000
What do you mean by "release 300k??"
As in use the equity from your other property, put a loan against it for $300k and release this towards the new place.
Great video! I have a question - Would it work in my favour to leverage equity from two seperate investment properties to buy a third investment property outright or better to leverage equity from one investment property and get a loan for the rest? Any tips appreciated. I’m currently seeking a top up against both investment loans to purchase the 3rd place outright - Is this wise or silly ?
Hi Anthony. Great to hear that you enjoyed the video! Let's dive into your question about leveraging equity from your investment properties.
Leveraging equity from multiple properties to buy a third investment property outright can be a feasible strategy, but it's essential to weigh the pros and cons. Here are some tips to consider:
Diversification: Using equity from two separate properties can provide you with diversification across your investment portfolio. It spreads the risk, which may be beneficial in the long run.
Interest Rates: Check the interest rates and terms offered by lenders for both scenarios. If getting a loan for the rest of the purchase results in more favorable interest rates, it might be a cost-effective option.
Cash Flow: Analyze the potential cash flow from the new property. Depending on your current cash flow situation and the rental income from the new property, it could impact your financial stability.
Loan Terms: Understand the loan terms for the top-up against both investment loans. Sometimes, these top-ups may come with different terms than a regular mortgage.
Future Plans: Consider your future investment plans. Will this purchase align with your long-term goals, or are there other investment opportunities you want to explore?
Professional Advice: Consult with a mortgage broker or financial advisor who understands your specific financial situation and can offer tailored advice.
Regarding your plan to seek a top-up against both investment loans to purchase the third property outright, it's not necessarily wise or silly. It depends on your individual financial circumstances and goals. Taking on more debt can be manageable and beneficial if the investment is well-calculated and aligns with your financial objectives.
Remember, as a Mortgage Broker, our team at Hunter Galloway is here to help you navigate these decisions. We'll work with you to find the best solution that aligns with your vision and makes your property investment journey as stress-free and uncomplicated as possible. Feel free to reach out to us so we can discuss your options in more detail.
If your job is white collar, you are better off waiting until AI and Boardrooms have finished cutting headcount. Then if you still have a job, see if Banks have loosened lending policies or we haven't had a Black are an event which would spike interest rates up to 10% probably as Banks panic they've lost their profits.....
Do you avoid lmi on second property doing this??
Sure can, so long as there is enough equity.
How about the interest from the money we take from the first house to down pay the 2nd house?
Hi Savann, I'm not sure I understand your question?
Does this mean there will be 3x active loans - the 100k, 300k and the new loan for the 800k?
Is this applicable for commercial property investment? My mortgage broker was proposing to combine the old and new loan into one but your explanation makes sense though. 😊
Thanks Ric, with commercial lending the banks will look to cross secure the properties against each other.
Is this.known as home equity loan?
Yes thats right!
So you need a huge equity gap to run this coarse
Yeah pretty much! Can be a tricky one depending on what that figure is.
How to buy a second house with no money down: already have enough wealth to buy a house with no money down. Bam!
The scary part for most is that now you owe 400k instead of 100k on a house that's only worth 500k.
That's very true, thanks Surmotor
can u make a new video with real price
Great question, this video might help. Please check out: ua-cam.com/video/mp0iwG9ly_Y/v-deo.html
Have a question my wife's parents are looking at giving us a gift to buy a second home and we are looking at renting this out to the parents which will be their retirement property we have only just moved in to our own home 7 months ago. Do you think we would be eligible in buying the second home?
Hey Kieron, yeah potentially there is no worries with the gifted funds going towards your deposit it will just be a matter of looking at your borrowing capacity and making sure your income is enough to support the second loan - get in touch with our brokers and we can crunch the numbers for you www.huntergalloway.com.au/free-assessment/
What if my income doesn’t change?
Great question, please check out: ua-cam.com/video/WSCMAKxQhR8/v-deo.html
This still depends if the bank will lend you 800k right? even though you have 300k equity
Thanks 100% correct, there is an assessment that will need to be passed.
@@MortgageBrokerAustralia cool, I'm one of the people who got the equity wrong, this video clarifies it for me, great explanation, thanks for this.
You're most welcome, glad you enjoyed!
I am thinking of switching to a fixed rate loan for my house. If I do this, does this complicate things regarding using the equity in my home to borrow 100% of the investment property?
Hey Edward, yes and no. Yes in the sense if you are fixed for say 3 years, and after 2 years you want to withdraw the equity from the property - you may be tied to your current bank as there would still be 1 year left on your fixed rate.
So if your current bank (hypothetically) gives you a poor valuation on your home in 2 years time, and gives you less equity it could restrict your choices for your future investment... Or you can refinance to another bank that gives you a better valuation but need to pay fixed break costs.
Cheers, Jayden.