Horrible month in terms of money savings (enter Christmas) but one of my IP’s went up in value. I decided to immediately pull the equity from the IP and stick it in the offset account just in case its valued dropped.
With my bank (commbank) it’s super easy to pull out equity as long as you stay at or under 80% LVR. Anything over that and you get hit with fees and paperwork. As soon as one of my IP’s goes up in value, my LVR drops under 80% and I top it back up to 80% and just keep the money that was pulled out in an offset.(+$1,264)
This way I’m paying no more in terms of interest, but now I have a buffer up my sleeve in case anything happens OR I can use this extra money to help towards a down payment on the next IP.
[wp_charts title=”linechart” type=”line” align=”alignleft” width = “100%” datasets=”-36000,-36000, -32000,-7000,20000,32000,45000,65000,83254,130000, 186000″ labels=”1-Jan-2011,1-Jul-2011,1-Jan-2012,1-Jul-2012,1-Jan-2013,1-Jul-2013,1-Jan-2014,1-Jul-2014,1-Jan-2015,1-Jul-2015,1-Dec-2015″]
|Date||Rolling NetWorth||$ Change||% Change||Notes|
|1-Jan-2012||-$32,000||$4,000||0.00%||Started Full-time work late Nov|
|1-Jan-2013||$20,000||$52,000||0.00%||Built property and recieved FHOG ($21,000)|
|1-Jan-2015||$83,254||$38,254||85.01%||Bought second IP|
|18-Mar-2015||$122,128||-$1,587||-1.28%||Paid for holiday|
|15-Apr-2015||$125,906||$3,778||3.09%||Withdrew equity from property|
|12-Jul-2015||$159,904||$7,000||4.58%||Paid 4K off HECS Debt|
|31-Sep-2015||$170,110||$2,205||1.31%||Car went out of Portfolio, Bought IP 3, Super went up and one IP went up|
|31-Oct-2015||$171,376||$1,265||0.74%||Big bills. Not much saved.|
|30-Nov-2015||$173,263||$1,887||1.10%||Super went down slightly|
|31-Dec-2015||$186,910||13648||7.88%||IP went up in value|
What service do you use to have your property revalued?
I use the banks valuation. I find that this is the best way to value a property for two reasons.
Firstly, the banks are conservative with their estimates. They are not going to value a property higher than it’s worth because at the end of the day this is their security in case I default on the loan.
I have found that the banks tend to undervalue properties to a degree which can be annoying but it’s always better to be conservative when leveraging.
Secondly, the ability to withdraw equity from my IP’s is solely determined by their valuation. It means jack squat to the bank if I get an independent valuer to value my IP and it comes back $40K over what they said it’s worth. They are always going to go with their own valuation and that’s all that matter if I want to withdraw equity or apply for another loan.
Interesting. Is this something your lender provides upfront to you and revalues periodically for your IPs due to your offset/equity pull arrangement?
I can only speak for Commonwealth but they offer a free service in netbank that allows you to enter in your property’s address and they pull data from various sources (RP Data etc.) and come up with a valuation that gets updated automatically for you about every 6 months.
If I need to have a revalue done ASAP because I believe that the price has gone up significantly, I just ring my broker and ask him to organise it. They must have a refresher or something at their end because I have only ever had them physically go out to one property once which is a bit weird because you would think that they would need to know if everything is in good condition or not…
Although just thinking about it now. Maybe they deliberately undervalue the house to mitigate against the possibility of it being in bad condition? Maybe it works out more efficiently for them that way rather than sending a valuer out every time someone wants their IP valued?
Are you including your mortgage debt into your calculations of your networth or do you own your properties outright?
I absolutely include the debt. I calculate the equity by having the value of the IP – the debt = Equity.
I definitely don’t own any properties outright and most likely never will. I would like my LVR to come down in time though.
Thanks for the comment 🙂
Love the podcast and blog mate having just discovered your content last month I’ve started from the start. It’s been great.
I think I’ll know the answer, and at risk of looking dumb I’m going to ask anyway. Do you have interest only loans or principle and interest? And can you explain why?
Thanks again for everything you do.
No such thing as a stupid question 🙂
We started with I/O loans because as property investors, we want as much tax-deductible debt as we can get. This frees up cash flow and allows us to reduce our taxable income.
HOWEVER! Around late 2017/2018 APRA changed the laws and essentially made it really, really hard to justify I/O loans because the rate difference was so dramatic between P&I. So we changed all our loans to P&I so our rate could come down.
Hope that makes sense mate 🙂
Awesome FB thanks for getting back to my comment so quickly.
That’s good to hear I’m currently P&I too, just wanted to see what other were doing.
Paying down the debt on the home loan is increasing my net worth (and having a paid off house is a nice security) but if like you said if it can reduce taxable income and the cash is better spent elsewhere then I was curious. But I think I’m on the right track. Thanks again.