Purchasing an Investment Property with Existing Equity
Building wealth through property investment is a goal for many who are thinking long term about their retirement.
This was the case for one of our recent clients, who were able to purchase an investment property using their existing equity.
We thought we’d walk you through how these clients achieved this and how it may be a possibility for you. Whether you're curious about your own options or just starting to explore purchasing an investment property, their story might inspire your next move.
Client example:
The clients initially got in touch as they were wanting to purchase a new investment property using their equity held in their owner-occupied home. They also noted wanting to refinance their existing lending to a new lender at the same time. We prepared a lending application to a new lender noting their existing home as security for the new purchase as well as what the new rental income would be. We also calculated the estimated additional costs associated with buying an investment property such as rates and insurance as these would affect their day-to-day cashflow.
As the clients had a great equity position, along with good income including the proposed rental income, they had no issue getting a pre-approval in place. They then found a property that fit their vision and after completing the sale and doing some renovations, they now have lovely tenants in the house.
Here's an example of how their equity position was calculated:
Say you have an owner-occupied home valued at $900,000 with a home loan of $400,000.
You wish to purchase an investment property for $500,000 but you’re unsure of your equity to secure the new home loan. Here’s an equation to work this out:
Owner occupied home value $900,000 @ 80% LVR (Loan to value ratio) = $720,000 less existing home loan of $400,000 = $320,000 spare equity.
Investment property value $500,000 @ 30% LVR deposit / equity required = $150,000
Result = Owner occupied property has sufficient equity to secure a full lend on an investment property with no further deposit funds required to add to the equation.*
*Please note lending is always subject to the lenders terms & conditions and servicing policy applies.
So, if you know your homes value, you can use the calculations above to work out whether you have enough equity to purchase an investment property. Alternatively, you can get in touch with one of our mortgage advisers who are able to run these numbers as well as assessing your lending affordability.
If you’d like to get in touch to learn about your lending options, feel free to get in touch. You can also subscribe to our monthly newsletters where we provide information on the latest housing market updates.
Fiona & Amy
NZ Mortgage Advice
