Can I buy a second place and rent out my first property without providing deposit?

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Susan
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Joined: Mon Sep 16, 2019 7:29 pm

Can I buy a second place and rent out my first property without providing deposit?

Postby Susan » Mon Sep 16, 2019 7:32 pm

Hi, I want to buy a second place and rent out my first property, without having to provide a deposit. I'm looking to purchase a property around $500K and my current apartment is valued at $300K. I am six years into my existing loan. I want to buy a second place and rent out my first property, without having to provide a deposit. How do I go about doing this?

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Otto Dargan
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Re: Can I buy a second place and rent out my first property without providing deposit?

Postby Otto Dargan » Mon Sep 16, 2019 7:49 pm

Hello Susan,

Welcome to the forums and thank you for reaching out to us.

You can use your equity to buy a second property even with no deposit.

A home equity loan basically lets you borrow against the equity you have in your home and invest it in another property, renovate, repay your debts (consolidate), etc.

Since you are using the equity to buy a second property, you will need a letter from your conveyancer to confirm you are looking for a property or a copy of the contract of sale when a property is found.

To qualify for an equity home loan:
  • You must owe less than 80% of the property value on your home loan.
  • Perfect mortgage repayments.
  • Provide last two payslips.
  • Provide most recent group certificate.
  • Credit file must be clear of black marks.
  • You can generally release up to 80-90% of the value in your property in equity to buy a second property.
If you do borrow above 80% of the property value, then you will have to pay Lenders Mortgage Insurance fees which can be quite expensive.

Give us a call on 1300 889 743 or fill in our free assessment form to find out if you qualify for an equity home loan.

Cheers,
Otto Dargan
Mortgage Broker
P | 1300 889 743
Home Loan Experts

Susan
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Joined: Mon Sep 16, 2019 7:29 pm

Re: Can I buy a second place and rent out my first property without providing deposit?

Postby Susan » Mon Sep 16, 2019 8:03 pm

How much of the rental income will lenders consider to work out how much I can borrow?

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Otto Dargan
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Re: Can I buy a second place and rent out my first property without providing deposit?

Postby Otto Dargan » Mon Sep 16, 2019 8:10 pm

Hi Susan,

Different lenders will assess your rental income differently. As a general rule, lenders will take 80% of your gross rental income along with other income, such as your salary, to calculate your borrowing power.

However, some will only use 75% of the rent, and some won’t apply tax to the rent while others will. Most lenders would not accept the rent as the main source of income.

In addition, many lenders differ on the way they assess negative gearing benefits and the assessment rates they use to calculate the impact of your current debt commitments.

Cheers,
Otto Dargan
Mortgage Broker
P | 1300 889 743
Home Loan Experts

Susan
Posts: 3
Joined: Mon Sep 16, 2019 7:29 pm

Re: Can I buy a second place and rent out my first property without providing deposit?

Postby Susan » Mon Sep 16, 2019 8:22 pm

Could you please explain what is negative gearing?

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Otto Dargan
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Re: Can I buy a second place and rent out my first property without providing deposit?

Postby Otto Dargan » Mon Sep 16, 2019 8:25 pm

Hi Susan,

Negative gearing is when the rental income is less than your interest repayments and other expenses relating to the property; essentially, you're making a loss.

It is calculated by first deducting the costs for the property or cash operating expenses from the rental income you receive. This gives us your weekly cash flow. Then, we calculate the effect this will have on your taxable income and the amount of tax you would get back, depending on your tax rate.

You can use our negative gearing calculator for more details.

The main benefit from negative gearing is a tax deduction on your tax return as the loss can be deducted from your tax payable income when filing your tax returns.

Give us a call on 1300 889 743 or fill in our free assessment form. Our award-winning brokers are specialists in investment loans.

Cheers,
Otto Dargan
Mortgage Broker
P | 1300 889 743
Home Loan Experts


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