Get two houses from one – Buying a 2nd property without a deposit

What is Equity?

Today we visit some of the fundamentals of getting into an investment property. As many Kiwis embark on their love affair with houses, a few use it as some type of retirement plan. Surprisingly some of our astute investors have paid little from their own pockets to buy a second and third property. This is due to equity being used as a deposit for another home.

With low interest rates and high rents you can have your tenant paying the mortgage off for many years. Lets look at the numbers in a little more detail.

0% deposit

Below is a very simplified version of what equity is and how it can be used as a deposit on another house. The difference between what your house is worth now and the loan, is called equity. Equity is essentially what you “own” of the house and can be used as a deposit on another house. However the thing to remember is that your banker will earmark some of that equity for the original deposit.

Costs

With certain market conditions you might find it is possible to find an investment which pays for its costs. As an example lets look at a loan of $270,000 used to purchase a rental property. Renovating or a simple tidy up can increase the potential rent return, this can be a good way to future proof the investment property from any possible interest rate rises.

Apart from the loan repayments you will find that in this scenario the council rates and house insurance will also have to be accounted for. Many of the expenses associated with the rental property are tax deductible, this includes the interest payments (not principle payments). You will have file an end of year tax return once you have a rental property.  Find out if your are able to buy another house