Re-financing: Rules around using gained equity in property to fund another purchase.

[holmc]

Hi Folks,

I visited my bank on Friday to discuss leveraging off my rental property to buy another.

High level info

• Purchase Price $620,000
• Purchase Equity $124,000
• Debt $496,000
• LVR 20%

I recently had it re-valued (by a bank approved valuer) and the value is now $700,000 so a $80,000 capital gain has been realised. For my next purchase I want:

• Purchase Price $550,000
• Purchase Equity $110,000
• Debt $440,000
• LVR 20%

I want to use the full $80,000 in equity from my first property + a cash amount of $30,000 to make my purchase equity - but this is where I'm running into difficulty with the bank. I thought:

• Total value of Portfolio (620,000 + 550,000) is 1,170,000
• Total debt (496,000 + 440,000) is 936,000
• Equity is $234,000
• Portfolio LVR is 20%

However my bank will only give me 80% of the $80,000 capital gain which is $64,000. Their arguement being that the total lending on the property can only by 80% because of the 20% deposit, however, when assessed across a portfolio this seems irrelevant. Any guidance here would be appreciate, is it possible to use the total $80,000 or 100% of the capital gains (I thought it was) and have a made an error in my calcs (for instance should i have use the new value of my current property when assessing the total value of the portfolio?).

Thanks,
Cam

[Rosco]

• Total value of Portfolio (620,000 + 550,000) is 1,170,000
• Total debt (496,000 + 440,000) is 936,000
• Equity is $234,000
• Portfolio LVR is 20%

Hi Cam,

Not quite right

Value = $700k+ $550k = 1,250k
Debt = Yours would be the $496k, plus $520k(ie the $550k less the $30k you are puttingin ) = 1,016k
LVR = 81.28%

So you would need a little more, or a bank that is willing to lend over 80%

Ross

[holmc]

Hi Ross,

Ah ok, thank you.

Clears things up for me.

Cheers,
Cam