Is 30% equity on my home enough to start investing? Thoughts?

[Elivi]

Hi all,

this is my first post and I want to thank everybody for their willingness to help.
I've been reading the forum for quiet sometime and I got a lot of info, I read a lot of books and I attended a few seminars as well but I think is time for me to take more action.

I bought a house in February which I live in and I have a boarder in it which helps to pay the mortgage.

my goal is to buy and hold, i have been looking at properties within a 300k-500k range in Wellington area.
my question here is:
is 30% equity on my home (about 97k) good enough to think of buying another house?
or should I keep increasing that number and wait a bit longer?

any advise, opinions, thoughts would be much appreciated.

thanks in advance.

[donna]

Hi Elivi,

20% min equity in your PPOR (home you live in) so you can borrow 80% of the approved reg. valuation.

You need 35% min. equity for rentals and borrow max. 65% of the value.

cheers,

Donna

[Nick G]

30% equity in your home means you have 10% equity "spare" to use as security (deposit) on an investment property.

You then need 35% deposit on that investment property as Donna mentioned. So your spare 10% is 35% of _____? That is how much you can buy today, assuming you meet servicing criteria.

[Elivi]

Thanks a lot donna and Nick G!!!

I better keep saving :-)

[DaveW]

Hi Elivi,

It looks like you need to build up confidence.

You mentioned boarders, this may be your strength and the type of real estate you can make work. Maybe one day you will become a commercial boarding house operator.

Here is a suggestion to think about where to go from now:

a) Sell your house through private sale (it's still a sellers market). This will give you $97k. You may be good at staging the house nicely to attract a better price. Of course you will then need to find a place to rent while you look for your next property, but you will be in a strong position as a cashed up buyer.

b) Buy a $400k house ($80k deposit) and move in. Find a house which has the potential to improve, preferably the worse house on the best street type buy. When I say improve I don't mean a house which is falling apart needing major renovations, I mean one where you can spend $10k to add an additional bedroom, or furniture, for example.

c) The more rooms the better for your rental income from boarders. You can present this income to the bank as they will take 80% of rental income towards your servicing of mortgages. A lot of people make more money in rental income than they do in their regular job.

This will help you with your confidence and may take 9 months to complete, after-which you will be a better position and better experienced for the next step.

Don't worry about the market going up or down. Just focus on building your rental income for now.

This approach you can do now rather than waiting how long to save a 35% deposit for a regular $300k rental house which has less rental income than your by-the-room boarders.

Your new home after your improvements may value up to nearly $500k if you bought well and improved well. The game is to make your own capital gains.

Something to ponder. If you have any questions feel free to ask.

[Elivi]

Hi DaveW,
thanks a lot for advice, much appreciated