How To Use Equity From Your House To Buy Multiple Properties | Whiteboard Finance

[@PersonalFinancewithRaviSharma]

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[@elvando100]

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?

[@AnujChopra]

Yes that’s correct and I fail to understand why this isn’t made clear in the video. Also, it’s highly unlikely to be neutral or positively geared.

[@jamesmoran6530]

Price you pay for being able to leverage that property. Plus, when you 6 month cash-out refi, you can keep money on hand as reserves/other expenses and flip some of those funds into your next investment.

[@vincentortega4284]

elvando, You will be taking on new debt/mortgage due to taking out your equity, you want to make sure your debt-to-equity ratio is safe, and you can easily make payments on your new mortgage; due to taking out a new mortgage loan.

[@tallaganda83]

Its just a way of not having to save for another deposit. There are no free tickets in life. Obviously if you own a house you likely won't be saving for a deposit, as all your free cash will be paying off the first house.

[@cheyeser]

In this environment serviceability is just as, if not more important than equity. However, not too many aussie property youtubers discussing this aspect.

[@clintkelly4546]

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?

[@Inbarreto]

with rent on the second property, if you take the equity and smoke it up, then you are screwed

[@ricm2508]

yes nobody talks expelictly about the repayment when you pull out the equity

[@roaryscott]

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

[@LordlyStatistic]

I reckon your correct

[@JakedownUnder_0]

Correct. Guess it depends how negatively geared one could go. People never make it clear that equity means increasing your mortgage repayments.

[@d.j.z.j]

Agree its nor as easy as using equity 😊

[@kurochandog9472]

totally agree. If an increase in repayment can reduce the quality of life significantly, then I would not suggest taking out equity.

[@uberboiz]

@@JakedownUnder_0 Agree. I think the expression of 'using' or 'withdrawing equity' is misleading in the first place - in reality, it involves withdrawing additional _loan_ (which is secured against the _equity_ in the house), which leads to an increase in mortgage repayments.

[@raghuc2k3]

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..

[@jamesmoran6530]

You're not relying on the rental income with this method. You're leveraging property to refinance and pull cash for your next investment or reserves.

[@DeeJay-t2g]

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.

[@bilders6701]

That's where Ravi (or any good buyers agent comes in) - finding positive cashflow properties.

[@ballstank3904]

​@@bilders6701lol good luck finding that...maybe 4-5 yrs ago

[@LauraMoyaLocalMortgageBroker]

You have look into tax incentives and negative gearing benefits offered in Australia for property investors. At the end of the financial year you do your accounting and tell the accountant to ensure they claim the holding costs ie. interest. Real estate management fees. Depreciation. Insurance etc to reduce taxable income or if you have a positive geared property you pay taxes. This is confirmed with the accountant. That’s how many of my clients do their loans for investments purposes. 👌😊

[@uberboiz]

@@bilders6701 even if a property is cash flow positive today, there's no guarantee it will remain so forever (unless you think Ravi can guarantee that too?).

[@uberboiz]

@@LauraMoyaLocalMortgageBroker Negative gearing isn't limited to investment property, though. So if you can find an investment (other than real estate) that generates positive cash flow without requiring a loan, why would you drown yourself in debt to purchase multiple properties with negative cash flow? Unless you are in the highest tax bracket because you make a boatload of money from other sources, the tax benefits of negatively geared investment property is questionable.

[@sadistfactory]

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..

[@svenerikmoeller8809]

Bugger me, just bought two properties with a current total rental yield of $92000 per annum or $1755 per week. Money came from a inheritance and needed to invest since I am a unpaid full time caregiver to my father. I am only saying that so you can see my income so in that would that be a barrier for a loan? Sorry for the long question

[@jaetamme7637]

True, I’m Maxed out after 5 properties

[@LauraMoyaLocalMortgageBroker]

@sadistfactory in 2024 vs 2022 the borrowing capacity has dropped a fair amount. To increase borrowing capacity 100% best to have higher acceptable incomes. Depending on the borrowing type of arrangement you have. Ie. personal borrowing vs SMSF. These type of borrowings are treated differently. Getting the right support and getting the proper guidance and information can make a world of a difference in achieving your goals. Good luck with your journey 🎉

[@LauraMoyaLocalMortgageBroker]

@@svenerikmoeller8809get your borrowing capacity confirmed first. As there’s a lot of ins and outs to arrive to that. Best to reach out to your bank or a mortgage broker. They can answer this question for you.

[@LauraMoyaLocalMortgageBroker]

@@jaetamme7637speak to someone like accountant. Financial planner and see if SMSF is a suitable option for you to get another property. Banks assess SMSF differently. Also some banks have lower stress tests and give different borrowing capacity vs other banks. Well done on achieving that level of success. But definitely explore your options as you never know what maybe possible for you

[@DopamineWhale]

Why do you never mention repayments on the loan?

[@LauraMoyaLocalMortgageBroker]

@DopamineWhale because he is probably not licensed like a mortgage broker to confirm mortgage repayments. Also as these contents stay around for a while and rates move frequently he does not want to mislead people into believing that they can get something and find out it’s way off due to the nature of the mortgage repayments moving constantly 🤷🏻‍♀️

[@uberboiz]

@@LauraMoyaLocalMortgageBroker I don't think he needs to be a licensed mortgage broker to highlight the risk of not being able to service multiple mortgages, _especially_ in the current high interest rate environment. He doesn't have to crunch the exact repayments to discuss such risk, but instead he only sells the dream of acquiring multiple property using 'equity' (which is misleading/misinformed by itself). 🤷‍♂

[@parafitality2730]

It's not an exciting topic and also works against his business agenda

[@ngrayzen6666]

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

[@dannyfire8694]

you also should tell people how to serve the loan repayment, that is core part.

[@AnujChopra]

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 ?

[@ChelseaSymonds]

Great video Ravi, loved the step by step explanation and use of whiteboard to explain clearly. Cheers for the consistent, educational content!

[@dannyfire8694]

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!

[@mateuszpoprawka9457]

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.

[@binance9975]

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.

[@PersonalFinancewithRaviSharma]

Correct

[@nis6064]

Yes and bank does not taken to account that rental income as an actual income . I think the most responsible way to become a multiple property owner is to buy rental properties every 4-5 years by using your own savings which is attainable if we can save 20k per year .so we can only buy 4 properties in next 20 years but keep in mind that after 20 years we still need to pay the mortgage to most of that properties .but this is achievable goal without losing your quality of life

[@asianboywhat]

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

[@AntoOlah]

Can you mention serviceability?

[@uberboiz]

He can, but he choose not to.

[@drexelspivey872]

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

[@AssadHamid]

End note: You need to have a borrowing power , your main income through job/business to do all this equity circle.

[@harjindermaan6515]

How about the borrowing capacity ?

[@MichelleISR]

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 !

[@shanewatts-wt5bc]

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.

[@PersonalFinancewithRaviSharma]

These are realistic numbers because it’s what we’ve done for multiple clients over the last few years. You are correct that if you look at the same market then the price would be higher but the purpose of multiple properties across different markets means you can diversify risk and also still target properties that are affordable and have upside for growth in line with their cycles. Servicing and sourcing the right properties are the biggest factors here

[@annanolan7156]

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?

[@tanyapotter1812]

What are your thoughts about tokenisation on real estate?

[@PersonalFinancewithRaviSharma]

Pros and cons for sure but I don’t see it happening for a decade

[@bonsaidownunder3140]

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?

[@cezarleao]

Please use a spreadsheet, as your handwriting can be difficult to understand at times.

[@tonymontana24596]

The risk is having all your properties tied up and becoming cross collateralised.

[@Chris-xu6wy]

using your equity is great, but don't forget you will need to pay it back.

[@dustblowingman]

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.

[@PersonalFinancewithRaviSharma]

Yeah servicing is difficult given where rates are currently but, planning ahead can reveal many opportunities. Additionally, buying in different structures can also help a lot for servicing

[@OnlyThe1Son]

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

[@jonbravo6262]

RAVI! These audio dings highlighting messages are blowing my Apods out of the ears🤯 It’s detracting from the message mate…

[@maxcanizales3374]

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.

[@PersonalFinancewithRaviSharma]

From a cashflow perspective you’ll be negative cashflow paying for the equity loan plus the loans on the houses. Over time the rental growth will mean it’s cashflow positive and the ROI with capital growth will mean the negative cashflow position won’t matter. Comes down to your strategy tbh. If you can’t afford the negative cashflow upfront then this tactic probably won’t work. It really suits the long term wealth building strategy

[@leeroyjenkins867]

your handwriting is so messy. can you please write slower so its more legible?

[@yasminhallie1801]

*Promosm*