Deposit and Equity

[20100]

Hi,

I have been reading a lot of books lately and spent hours instructing myself on this great forum, but I have this question that I cannot get out of my head:
In a lot of books, it says that you can invest 100% from equity. But how do you get the 10/20% deposit cash (what pourcentage exactly should it be?) to start with, from that equity?

Is the best way is having a revolving account beforehand?
Let's say I have 400K in equity , am allowed to borrow that amount and purchase a property at 350K:
Do I pay the 35k deposit from the revolving account, and then borrow 350K and repay the 35k to the revolving account (which has much higher interrest rate? I am allowed to do that?
Is it the best way?

Thanks in advance

[Jumpin]

1. try and negotiate small a deposit as possible. There are no rules about 10%. RE agent will try to insist that your deposit at least covers their commission, but you dont know what you can get if you dont ask.
2. On one occasion, I had the bank pay out the deposit straight away. I'm hardly a seasoned investor, so that cant be unusual.
3. Revolving credit account certainly works well, but will have higher interest rate as you point out. No problem in paying that off straight away when the bank settles. I have a permanent revolving credit facility, but the account is almost always in the black. Its just there when I need it.
4. Credit card if you have lots of credit and small deposit - best if short settlement period.

good luck

Tim

[spaceman]

No Deposit

The last 3 out of a total of 5 properties I have purchased, I have paid $0 deposit. Only on one occassion did the RE try to say "you can't do that" ...to which I replied "ok no problem the deal is off" ...of course the RE then changed her tune.

In all three cases I was upfront about not wanting to pay a deposit and said so from the start.
yes i could have if i really had to, but it was just easier for me not to. None of the deals fell over, I concede that it is possible that it could become a sticking point in a negotiation .... but I doubt it ... the question I would ask is why is it a problem?

So I would say that the best way ahead for you is not to pay any deposit.

If you have $400k equity then I reckon you should be able to purchase up to a max of $2 million depending on other factors such as debt servicing etc ... so a $350k purchase shouldn't be a problem ..looking at the following example and assuming your current property is worth $500k

Current situation property $500k mortgage $100k equity $400k LVR 20%

Future situation 2 properties $850k mortgage $450k equity $400k LVR 52%

I couldn't see the banks worrying untill the LVR was closer to the 80% mark ...of course there are other factors to take into account as well.

good luck

Cheers
Spaceman

[xris]

The last 3 out of a total of 5 properties I have purchased, I have paid $0 deposit. Only on one occassion did the RE try to say "you can't do that" ...to which I replied "ok no problem the deal is off" ...of course the RE then changed her tune.

That is good and useful.

In all three cases I was upfront about not wanting to pay a deposit and said so from the start.

Again, that is good.

the question I would ask is why is it a problem?

Possibly for several reasons, not least of which is that you would be seen as a time waster. The fact that you are probably not is not relevant.

So I would say that the best way ahead for you is not to pay any deposit.

Poor advice I believe, despite your experience to date.

There are valid and sensible reasons why a deposit should be paid, both for vendor and purchaser.

xris

[20100]

Thanks for you answers. As a novice (only purchased our own house 13 years ago), I doubt I will have the skills to negociate a 0% deposit!
I guess my next step is to arrange a meeting with a few morgage brokers to see what they come up with.

Cheers

[JohnL]

I always put in a $1000 deposit and never had it questioned over 70 purchases (even if it should have been!!!).

Your question leads to another thought. I think the revolving credit is a good idea, to pay the difference between what you can borrow and the price of the house.

Generally, you can only borrow 100% if you use the bank that has your own house as security.

One suggestion is not to use your own bank for investment properties at all. This reduces the risk of losing your own home. So you put in the revolving credit using your own bank and use that to fund the difference on each new purchase.

Techniques to recycle that deposit money out of each investment over time is an entirely different topic.

John