12
Finding your deposit
There is more than one way to finance your
deposit.
The good old...save a deposit:
The most
simple and straightforward method of making
a property purchase is to save a deposit.
Use the equity in your home/other
property:
If you are already repaying your
own home or have an investment property,
you may have enough equity to use as a
deposit for your next property purchase.
Self managed super fund (SMSF):
Changes
to superannuation legislation have made it
possible for your SMSF to borrow to invest in
real estate.
Using the existing equity from your
home to buy your investment property
Many Australians are now tapping into their
‘pot of gold’ - the equity in their home -
allowing them to invest for the future and
forge ahead financially.
Tapping into your home equity (or equity
from another investment property) is a great
launching platform for buying an investment
property.
If you are already repaying a property, you may
be able to use the equity you have built up to
purchase an additional property. Let’s use an
example to explain this process.
Your lender is going to require that the loan
amount is less than 80% of the value of the
property unless you are willing to pay lender’s
mortgage insurance (LMI), so to keep things
simple we will assume that you can only
borrow 80%.
From our example below, you have $250,000
available in your home loan that could be
used to purchase an investment property. You
have two different options available in terms
of structuring your loans:
1
Establish a line of credit, or
2
Apply for a standard term loan with
a redraw facility or an offset account
where the remaining equity will sit
until required.
Let’s now assume that you purchase an
investment property worth $500,000. You
again want to avoid LMI so you will need to
provide $100,000 as a deposit. You also need
to consider the upfront purchase costs. These
vary from state to state so we will assume 5%
of the total purchase price (or $25,000). This
means you will need to provide $125,000 from
the equity in your first property.
FINANCE
TOTAL HOMEVALUE
$500
k
$400
k
MAXIMUM
BORROWINGS
80%
AMOUNTTO PAY
150
k
EQUITY AVAILABLE
250
k
UNAVAILABLE
EQUITY
20%
$100
k
Ask us for our
article ‘Save,
equity or super’.
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