Using First Property Equity to Buy a Second Property

[AlboNet]

Hello,

Came across this forum a while back and have been lurking in the shadows, some great discussion on this site and figured you might be able to help mould my thoughts on the subject.
Thanks in advance.

The main question is when is the best time to buy a second home using equity from the first?

Some context.
Based in London, zone 3, we bought our property to live in a few years ago.
Happy with the area and am confident it will grow in value over the years to come as it is situated around a busy commercial and residential area with excellent transport links.
We’re now considering buying a new property to live in (more space) whilst renting out the existing one.

The bank have confirmed that taking equity out of the current home is a feasible approach, we haven’t done a full deep dive yet but effectively there is extra equity available based on the existing property valuation.

Which brings me to my question…
Is there an optimal time to release equity in order to buy another property?
During a price peak we can take more equity out of property 1 to spend on a subsequently more expensive property 2.
During a lull I assume the opposite occurs.

It would seem to me it’s really a case of buying whenever we want rather than playing to market dynamics.

See what you think.

Cheers

 

[PostBrexitInvestor]

Hi @AlboNet

Welcome to the forum. You have hit the nail on the head with your last comment. When markets are flying you will have more equity but in theory property number 2 will be "more expensive". The opposite will occur when markets are struggling.

If you could give us an idea of the level of equity you have in property one and how much you are looking to invest into another property we might be able to assist further.

 

[FWL]

Hi @AlboNet

I would be interested to hear if you have made any progress with this venture?

 

[PostBrexitInvestor]

Hi @AlboNet

I forgot to ask, what is your current experience with London property prices? They seem to be softening all over London? Then again, if, as seems likely, there is a second EU Ref this would surely give a boost to London property prices?

Where is the second property you are looking at based?

 

[AlboNet]

Hi guys,

Apologies this has taken me so long to get back, I was expecting an email to ping me when someone responded and wasn't seeing anything so checked the site manually and hey presto, responses! Thanks for those.

So property 1, we have around £150k in equity sitting in it.
When I spoke to the bank last and property market was (I guess) at its peak then there was potentially another £50k I could have taken out, thus giving us £200k to play with on property 2.

Based on the more recent events I could (guessing from Zoopla house value) get an extra £20-30k; funnily enough I have seen zero shift on the asking price of property 2...granted we could probably negotiate it down without too much hassle.
Even looking at other new properties going sale am not seeing much of a discount around London (in and around Haringey) but also am just seeing less new properties come to market, inbox hasn't pinged me in a few weeks.

Worth mentioning that we're looking for a property in need of renovation...something along the lines of worst house on the nicest road, just that I can't afford any 'really nice' roads!

See what you think, cheers.

 

[diyhelp]

Personally I would let Brexit pan out before I made a move into a new property.

On the subject of renovating a property, if you are struggling for additional funding, it might be useful to look at briding loan finance to fund the work. The idea is simple, the uplift in value should be much greater than the cost of the bridging loan finance. Then you can refinance the mortgage on the higher value.

 

[FWL]

This might be useful:-

https://www.propertyforum.com/property-investment-strategies/guide-to-bridging-loans.html

 

[AlboNet]

As excited as I get I think you're right in that I should really let the Brexit situation pan out...maybe put offers in at ridiculously low rates (low ball 20%)?

Thanks for the bridging loan, really useful as I haven't really read into them properly and sound handy.

Merry Christmas everyone.

 

[Longterminvestor]

I have a feeling that Brexit will get worse before they finally come to an arrangement which suits everyone. I have seen cracks in the Ireland position with the Republic of Ireland readily accepting that a no deal Brexit would be a disaster. Up until now the talk has been about how hard it would hit the UK - is the tide turning?

 

[AlboNet]

I agree that prices will go down further, what I'm flabberghasted by are the London prices that haven't changed at all, if anything the prices around me up in Haringey have gotten higher!

I get the impression estate agents are keeping old props on market at same price, and new ones at higher prices in the hope that buyers negotiate to a lower price that is practically equal to where they were at about 4 months ago.
As if there's a certain degree of supply and demand propping up higher than should be prices in the short term.

Will be very interesting to see how this drags out. If we have anyone in the know of how estate agents work that would be useful too.

Cheers

 

[diyhelp]

I think you hit the nail on the head, there is a lack of supply and demand has not fallen to the same extent. As a consequence, on the surface London house prices look to have remained fairly steady during this difficult time. Whether they will remain steady in the run-up to 29 March and Brexit day remains to be seen.

 

[realdeals]

Going back to the subject of bridging loans and short term finance - investors should be wary but not scared of taking on some form of debt if the return is greater than the overall cost of the debt. If debt was not used in business, where would we be?