Have you ever wondered how rich people manage to buy so many invest ment properties? I can tell you that Revaluing & Refinancing your Investment Property is the quickest and easiest way to be able to buy your next property . The other option is to save for another deposit but in most cases this will take you a few years so it is much easier simply refinance your investment property.
First of all you need to organize the bank to perform an investment property revaluation. The best time to do this is just before your tenants move into the property as it should be looking great after you ‘cheap renovations’ have been completed. It goes without saying that the better your property is presented the more favorable the investment property revaluation will be, so make sure you have the place looking great.
Once the investment property revaluation has been completed it is up to you to decide if you would like to refinance your investment property loan. Let me explain to you the advantages of this procedure.
Let’s pretend that you bought your property for $300,000 and after 2 months work it was revalued at $360,000 (NOTE: whilst these are very general figures they are very realistic if you have bought and renovated well). Let’s assume that you had a 90% loan so you paid a deposit of $30,000 and you have an interest only investment property loan of $270,000.
What you can now do is ask the bank to refinance your investment property at the new price of $360,000 and get access to 90% of the new investment property revaluation. What this means is that rather than having a loan of $270,000 (90% of $300,000) you now have access to a loan of 90% of $360,000 = $324,000.
So what’s the difference between $324,000 and $270,000 the payout figure of your old mortgage? $54,000. You now have access to $54,000 ‘whenever’ and for ‘whatever’ you would like without even selling your property.
The are two common questions that people normally ask when they hear about this investment property refinance strategy.
Q. Do you have to pay interest on the $54,000 if you don’t want to spend it?
A. Absolutely not, you only have to pay interest on it if you decide to spend the money.
Q. Can I use the money to buy anything, for instance a new car or a trip to Disney world?
A. Technically yes, but I definitely wouldn’t advise you not to do that – just yet.
The whole concept of this Investment Property Revaluation and Refinancing Strategy is that you use the equity of your asset to buy more assets NOT liabilities. $54,000 would be the perfect amount to use as a deposit (and legal costs) of your second investment property and that is exactly what successful investors have been doing for years and years.
If you’re a bit disappointed that you don’t get to buy your Porsche straight away then don’t worry, you can still buy your dream car but I would advise you to buy a couple of properties first. Then once you have started to create some serious equity I would insist that you treat yourself to some of life’s great luxuries. Who would have thought that refinancing your investment property could be so much fun? So what are you waiting for, its time to put the ‘5 R’s investment Property Strategy’ into action.
Renovate – Rent out – Revalue – Refinance and Repeat.