A lot of our clients are doing really well in this market. Equity is increasing, and some have re-financed to pull out money for more investments. It’s a good time to have a think about how much money (if any) to access.
We’ve spent a bit of time talking about the importance of leaving some equity in the investments. We’ve written before about Loan to Value Ratios (LVR). Your LVR is the ratio of your lending to the value of the assets you’ve borrowed against. If you have a loan of $200,000 against a $400,000 house, your LVR will be 50%. If, though, you managed to get 100% finance against a $400,000 house and 90% against another $400,000 house, your LVR would be 95%.
This number is important, because financial institutions use this number to assess how big a risk you are as a loan candidate. The lower your LVR, the more likely the institution is to see you as a viable borrower.
Perhaps more importantly, the higher your LVR, the less flexibility you have if property prices tumble or if you need to refinance in the future.
Having a low LVR is not the be-all-and-end-all, though. If your goal is to build your investment property portfolio aggressively, a low LVR may indicate that you have equity in your existing portfolio that could be better used in building your investment base.
Have a talk to us about what LVR would be best for your needs – you want something that will work for you while keeping you comfortable and safe.
If you are close to your personal LVR limit, you might want to consider some other strategies for building your portfolio:
- Save cash. Look at your personal spending budget, hunker down and save.
- Build value in your current portfolio. Renovate/spruce up using your cash reserves and increase rent accordingly. Once the renovation cash has been reimbursed, put the money aside against a deposit on your next property.
- Sell any properties that aren’t performing well enough and use the equity to buy better properties. Be aware, however, that real estate transactions can be costly – make sure you factor selling and buying costs into your analysis.