Minimum equity for safely growing portfolio of rental properties

[Varinder]

I've recently bought a single family house

Is there a way to figure out minimum amount of equity to have in the house before investing in next rental property?

I'm aiming to have 10 cashflow positive rental properties over 10 years timeframe

[Beano]

I've recently bought a single family house

Is there a way to figure out minimum amount of equity to have in the house before investing in next rental property?

I'm aiming to have 10 cashflow positive rental properties over 10 years timeframe

There are too many variables to give a answer
You are best to talk to a bank , mortgage broker etc
Also properties can vary from $25k to $100m plus
Best you work on things like net profits / net rent etc

[DaveW]

You've asked the question after you've bought your first rental property.
You should really be looking ahead when purchasing a property otherwise you will become unstuck, over leveraged and wondering how people manage to acquire 10 properties.
Before you buy your first property you should ask first what do I need in my first propert in order to then be able to buy the second property 6 months afterwards.
Fireard thinking. I can help with that.

[Varinder]

Thanks Both,

I wanted the first property to cover all expenses (which it does, in theory at least) and mortgage amount to be small enough to allow me to borrow for next property

Mortgage on current house is about $230k

I don't understand how to figure out which option is best:
- Pay off mortgage on the house in under 3years (~$75k per year) and then borrow for next investment
- Or, get about 60% equity in the first house and then use remaining capital for next investment

Plan is to buy a house roughly every 3years:
1st year (2019) = 1house
3rd year (~2022) = duplex
6th year (~2025) = 3-units
10th year (~2029) = 4-units

[DaveW]

That's up to you which option you choose. Your second option will obviously get you to 4 units faster but you will have more mortgage.

As long as your mortgages are being paid by the tenants and you keep your properties well maintained, and you buy in good growth locations then your strategy will be sound.

[Davo36]

That's up to you which option you choose. Your second option will obviously get you to 4 units faster but you will have more mortgage.

As long as your mortgages are being paid by the tenants and you keep your properties well maintained, and you buy in good growth locations then your strategy will be sound.

Oh and you know, the huge property bubble we've built up doesn't burst.

[DaveW]

The biggest regret most people have late in their life is not following their own ambitions.
There are people including on this forum that say it cannot be done. Don't let this put the fear in taking the step into real estate. People will always need somewhere to live, it's one of the safest investments.
I can help you choose the right property at the right LVR.

[brokerman]

In terms of pure equity it's not a simple answer!
As at today it looks like this.
With a bank maximum loan to value is 70% in each property. The exception is new build which can go to 80%, maybe 85%.
With a non bank lender the LVR goes to 80% with a small premium on rate (ignore the idiots who still believe non bank lending is expensive).
So for ready built you looking at 80% in the low fives as a rate and for new build up to 90% in the mid five's.
Hope that helps and who knows what rates and RBNZ will do in the future. My take is rates will rise and RBNZ will relax investment lending within a couple of years or so.