How To Use Equity From Your House To Buy Multiple Properties | Whiteboard Finance
How To Use Equity From Your House To Buy Multiple Properties | Whiteboard Finance
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When interest rates go up or there are issues with renting, people are screwed. Everything sounds great, but there’s a big risk in the back of your mind if someone is leveraged to the max.
listen…
a guy has a job at a local store earns lets say 80K a year. he wants to buy his first property which costs 500.000.. he has the deposit, say 100K
he goes into the bank. shows the bank his job, the deposit , the bank approves his loan for 400K on the property because his STORE JOB of 80k can cover the loan on the property.
he walks into the bank, says I want my 100k back, add it to the mortgage, ok.. so now the mortgage is 500k , have you increased the rent to cover that loan?
now you walk back into the bank with 100k and say I want to buy another property.. here is 100k.. NOW
the bank manager is going to say.. EXCUSE ME SIR.. you earn 80k. and have debt worth 500k and a mortgage of 500k and a property which is rented.
now you wanna buy another property for 500k? how will cover that loan on 80k?
ohh dont worry, I will rent it… HAHAHHAHAHAHAAHA
the bank manager says.. what if your renter gets fired and cant pay the rent for 3 weeks? you cant kick him out.
what happens on your 2nd property when the renters cant cover that rent too?
you have money? money for insurance? property taxes.. repairs..
the bank manager wont give you 5 mortgages.. 10 mortgages when you are some store clerk on 80k…
banks arent stupid
Smart guy you forgot to mention, who’s gonna pay for the equity loan??? Good try. 😂😂😂 1st home payment, plus second home payment, plus equity payment. Makes no sense. 3 payments in a row. How are you suppose to grow. Please explain that.
using your equity is great, but don't forget you will need to pay it back.
your handwriting is so messy. can you please write slower so its more legible?
End note: You need to have a borrowing power , your main income through job/business to do all this equity circle.
you also should tell people how to serve the loan repayment, that is core part.
no strong cash flow you will loss more money rather than making money! cash flow is the king, one way or another you have to have enough cash to serve the loan repayment otherwise won't work!
I just don’t understand how you cash flow over the home equity loan on the first property, it seems impossible to buy the house all cash with the loan and then get the rent higher than the monthly loan payment
Great video but what about serviceability ? What if all the investments are negatively geared ? You pay the original mortgage and then the equity loan on top ? Make that 5x for 5 properties. Any comments on this please ?
so, if you buy these properties, say for example 3 properties in 3 years value 500,000 then you can pay the deposit as explained but you also need a higher Home loan of 500K+500K+500K = 1.5 Million
and your repayments also go high on 1.5Million loan
QUestions:
assuming your income hasnt risen 3xfold
– how do you get a home loan of extra 1 Million?
_ How do you cover the cost of extra loan repayments, i guess some properties would have some cash flow rental income but still you would be out of pocket while you are also savimng for a deposit for these new investment properties.
Can someone explain please !
Promosm
What I’m failing to understand is that Buying the first property and then using the equity to get the second one is all good. But what about the cost of the equity taken out from the 1st property? That’s an additional loan taken for which you have to pay for. Which means your monthly mortgage payment increases. In summation, if the property is cashflow neutral, you’re paying your existing mortgage + the instalment for equity taken out. If it’s rinse and repeat on the second property, it again adds up to the payment. I hope my understanding is correct?
Please use a spreadsheet, as your handwriting can be difficult to understand at times.
This is not 3.5x. You are comparing option 1 ( ok returns ) with option 2 ( excellent returns ). This doesn't make any sense. You are just enlarging the difference by adding better conditions to option 2 such as higher appreciation and under market value properties. Instead, you should just compare both with the same conditions and appreciation. This is more realistic and gives a clearer view on the difference between refinance and not refinancing
Can you touch on income in a video? You always talk about how much equity will get you but that equity is useless if your income isn’t sufficient correct?
How about the borrowing capacity ?
The risk is having all your properties tied up and becoming cross collateralised.
Can you mention serviceability?
you still need income to service the loan or the banks wont give you a loan. I own 5 properties and have 500k+ equity but the banks wont lend me more as i need more income.
What are your thoughts about tokenisation on real estate?
A broker can only do so much to help with getting better borrowing capacity. Im on 80k and am struggling to get a loan of 330k to get my first property so dont see me being able to get a 2nd loan from a bank anytime soon until my pay goes up and interest rates go down.
Best bet is for me to just keep saving money once ive got my first property until the time comes the bank will give me a loan for a 2nd.
Apart from the obvious concern of servicing multiple loans from your income and rent others have mentioned, you have not shown realistic situation in option 2. You mention buying a 450k house which goes up in value…great. But then you buy another 450k house using the equity in the new property due yo its griwth. But generally speaking if the first house went up 10% to get you your equity, its safe to say the 2nd house you are buying also went up 10% so is not 450k but actually 495k. This doesnt stop the process, but it certainly slows the process down. Yes you could purchase in s different market but then the house is probsbly not 450k. Furthermore you are using 450k for house price….very few properties in growth ateas available at that price
You need to buy a property which offers both growth and yield to allow you to continue to use this process. Otherwise you get stuck at 2 investment properties and cant continue to service loans for more properties.
Are you actually a Financial planner/advisor? I don't want a full SOA, but I am basically mortgage free at 44 and I wanna see how I can buy another property, but the problem is we are technically not earning an income, as of the way I am doing things right now?
Great video Ravi, loved the step by step explanation and use of whiteboard to explain clearly. Cheers for the consistent, educational content!
RAVI! These audio dings highlighting messages are blowing my Apods out of the ears🤯
It’s detracting from the message mate…
I’m actually keen to see Ravi’s response to excellent questions people have here in the comments! If it was as straightforward, wouldn’t most if not many would be buying properties using this method? Rental market wouldn’t have existed if most investors were in positive cash flow from day 1..
Why do you never mention repayments on the loan?
Explain how the repayments are then structured for said property the equity is extracted from and how people deal with the new repayments and interest structure?
Tight buffer rates with banks at the moment. This is no longer possible.. maybe can do 2-4 properties but beyond will be very challenging. Only if interest rates drop we could borrow more
In this environment serviceability is just as, if not more important than equity. However, not too many aussie property youtubers discussing this aspect.
The lenders need you to be able to service the loan from your income, the more properties, the more required income, they won’t just accept the rent. We’ve tried..
With the rental income of each property insufficient to cover the interest and holding costs, how can the borrower fund the deficit from ordinary earnings on multiple properties.
Option 2 causes an increase in mortgage payment though. So you would either have to raise the rent significantly or find another property that's got great cash flow