# Options for a fully paid off property?



## Tyler Durden (29 December 2012)

Just wondering, hypothetically, what options a person would have if they had a fully paid off property but no other significant amounts of cash? For example, could they use that property to secure a loan for another property of a lesser value, or would a deposit still be needed? Or perhaps withdraw some money against the property to start a business?

PS. I am just asking what options/alternatives would be available, not what _should_ be done.


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## So_Cynical (30 December 2012)

Tyler Durden said:


> Just wondering, hypothetically, what options a person would have if they had a fully paid off property but no other significant amounts of cash? For example, could they use that property to secure a loan for another property of a lesser value, or would a deposit still be needed? Or perhaps withdraw some money against the property to start a business?
> 
> PS. I am just asking what options/alternatives would be available, not what _should_ be done.




The best thing about having a property paid off is that you can use it to borrow against and get access to cheaper money.

Property secured (interest only) investment loan 5.39%
Unsecured investment loan 12%


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## cynic (30 December 2012)

I am not up to date with the current rules, but, back in 1998 when I purchased the last of my IP's, the bank was willing to lend me any amount provided satisfaction of two criteria. 
I had to be able to provide evidence of sufficient income to meet all financial obligations (including proposed borrowings) and the resultant LVR across all my real estate holdings (again including proposed purchase) had to be no greater than 80%. A conservative estimate of rental income from the proposed IP could be counted towards total income for this assessment. With mortgage insurance (and financier approval) LVR's greater than 80% were attainable.

In effect, a person with sufficient income and next to nothing in savings, could satisfy the 80% LVR  and still purchase an additional property (of equal value) provided there was just a little more than 40% equity in the existing property (some additional equity would be required to cover costs incidental to purchase and financing).

I'll be interested to read from those posters with more recent experience as I'm curious to know whether there've been any significant changes during the past 15 years.


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## Tyler Durden (30 December 2012)

So_Cynical said:


> The best thing about having a property paid off is that you can use it to borrow against and get access to cheaper money.
> 
> Property secured (interest only) investment loan 5.39%
> Unsecured investment loan 12%




Wow! I didn't even think about that as a possibility!!
Learn something new everyday


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## prawn_86 (30 December 2012)

Tyler Durden said:


> Wow! I didn't even think about that as a possibility!!
> Learn something new everyday




The problem is however if all you have is a paid off PPOR and you want to unlock some of the 'value' in it, there is no way of doing so unless you want to pay interest on a loan.


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## Tyler Durden (30 December 2012)

prawn_86 said:


> The problem is however if all you have is a paid off PPOR and you want to unlock some of the 'value' in it, there is no way of doing so unless you want to pay interest on a loan.




I don't understand...isn't interest a given on all loans?


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## prawn_86 (30 December 2012)

Tyler Durden said:


> I don't understand...isn't interest a given on all loans?




Yes of course, but if Joe Average has diligently been paying off his PPOR and it has risen in value of say 100k it then means if he wants access to any of that 100k he has to pay interest on it. In other words, there is no way of unlocking any increase in price on a PPOR short of paying interest or selling the property.

A bit off topic i know


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## herzy (30 December 2012)

prawn_86 said:


> Yes of course, but if Joe Average has diligently been paying off his PPOR and it has risen in value of say 100k it then means if he wants access to any of that 100k he has to pay interest on it. In other words, there is no way of unlocking any increase in price on a PPOR short of paying interest or selling the property.
> 
> A bit off topic i know




Burnsy, what prawn is saying is correct, but don't worry it doesn't really affect the answer to your question. As was said, the great thing about a paid off property is you can borrow against it (pretty much up to it's current value, if you're game) and use that money for other things (e.g. a rental property, stocks, etc) - you'd just want to make sure that a) it safe/you're not going to default and lose your house b) return is greater than the interest you'll pay on the loan.


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## Tyler Durden (24 February 2013)

If I want to ask this same question of a professional, would it be a financial adviser?
Anyone know roughly the cost?

Please tell me they're not like my knee surgeon who charged me $300 for a 5 min consultation which didn't tell me anything my GP didn't already tell me.


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## ROE (24 February 2013)

Tyler Durden said:


> If I want to ask this same question of a professional, would it be a financial adviser?
> Anyone know roughly the cost?
> 
> Please tell me they're not like my knee surgeon who charged me $300 for a 5 min consultation which didn't tell me anything my GP didn't already tell me.




No need to see financial adviser, walk to a bank or broker and said you want to borrow XXX and you have your debt free home as security and you want the interest rate to be the same as a home loan rate .. current going rate 5.xx..

you have to hand over your title though, banks will keep them as long as you have money own on them...once the loan is paid off they hand it back to you with the normal discharge and change of title holder etc...a couple hundred bucks admin...

banks don't care what you do with the money cos they got your title ...you default, you waste the cash they sell your house....


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## So_Cynical (24 February 2013)

Tyler Durden said:


> If I want to ask this same question of a professional, would it be a financial adviser?
> Anyone know roughly the cost?
> 
> Please tell me they're not like my knee surgeon who charged me $300 for a 5 min consultation which didn't tell me anything my GP didn't already tell me.




Most super funds have a free consultation service, or a cheap one at least.


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## prawn_86 (24 February 2013)

Tyler Durden said:


> If I want to ask this same question of a professional, would it be a financial adviser?
> Anyone know roughly the cost?
> 
> Please tell me they're not like my knee surgeon who charged me $300 for a 5 min consultation which didn't tell me anything my GP didn't already tell me.




See the other replies, or if your accountant should be able to point you in the right direction also if you have a good relationship with them


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## Vixs (24 February 2013)

Working in a financial advice firm and having seen some of the crap advice clients have come to us with from super fund consultations, my recommendation is an emphatic 'speak to an adviser'. Preferably one with a credit licence, so they can broker the investment loan as well. Mortgage brokers don't need to haggle and threaten to get the best rates, they know where to find em and who to speak to.

If you do need advice around the underlying investments, the adviser will be able to do that. If you don't, you can at least get advice around structuring the loan.

Most adviser's don't charge like lawyers for their time (though give it a few years as they ban and remove every other revenue stream), so you are likely to be paying for services provided and not time spent.


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## sydboy007 (26 February 2013)

One question I would have is is the property a primary residence or an IP.

If an IP I'd like to know the net yield, then start looking at what I could earn from the high yielding shares.

Might be a shock.


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## Vixs (26 February 2013)

sydboy007 said:


> One question I would have is is the property a primary residence or an IP.
> 
> If an IP I'd like to know the net yield, then start looking at what I could earn from the high yielding shares.
> 
> Might be a shock.




If you are in a position to take advantage of leverage, property equity is the way to access cheap finance.
 5.4% investment loan trumps 8% margin loan for return anyday.

There is a place in a portfolio for both property and equity, why not get a line of credit against the house and buy shares with the funds?


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