The value of first property you have bought appreciated tremendously? Perhaps you may consider it is a good opportunity to top-up your home loan now to buy more rental property. That means more passive income you are generating for your retirement plan in future.
Let’s see an illustrated example of how a cash flow investor top-up home loan of a property with tenant to make more money so that can buy more rental property to generate more rental income:
Case Study
- Project: ABC Apartment
- Buying Price: $245,000 (10% down payment, 90% loan for 30 years)
- Market Selling Price: $320,000 (assume same value as per bank’s valuation)
- Rental: $1,800 per month
- Home Loan Installment: $990 (loan $220,000, 30 years, BLR-2% = 3.55% interest rate)
- Current Outstanding Home Loan: $210,000
If I’m the owner of the property illustrated on above, what will I do with the property? How about you?
As a cash flow strategy property investor, I would top-up home loan for this property at new market value of $320,000 and have a new home loan of $288,000 (subject to getting a new 90% margin of finance). Since the current loan outstanding is $210,000, then I would have $78,000 as an overdraft account. I will only pay interest if I use the funds in the overdraft account. In this manner, I will still be paying the similar $990 home loan monthly installment and getting rental income at $1,800 and thus a gross positive cash flow of $810.
Always remember your wealth is created in Buy to Keep (BTK) portfolio over the longer run and Buy to Sell (BTS) portfolio is to generate seed money to reinvest into BTK portfolio. For me, I normally buy and seldom sell unless the offer is super fantastic. Source: Kam Wei Tsung, a property expert in rental property investment
As a conclusion, I don’t need to sell the property and I have established a $ 78,000 overdraft account and I still holding on this property and getting positive cash flow of rental income every month. Have you realized the leverage power in property investment?
{ 2 comments… read them below or add one }
Hi Horlic,
I have seen a lot of property gurus like you talk about the technique of leveraging by refinancing loan after the market value has gone up.
However, I am a noob and I don’t quite understand it when you mentioned you would have “$78,000 as an overdraft account” and still paying the same $990 monthly installment. Isn’t that when you refinance to a bigger amount of loan, your monthly installment will increase? Or does it depends on refinance package that we get?
Thanks for all your good sharing in this blogs. I always believe in the Law of Abundance. May you be blessed.
How does a person make a fortune from property investment? For example, a person working would have a limitation on how many properties they could invest in. So, lets say, the maximum number of properties that he/she could finance is 5 properties…. Eventhough it is a positive cashflow investment, I do not think the return is that much and “financial freedom” will not be achieved. Unless, the financing has been settled with the banks…. However, the loans will only be settled in 20 to 25 years time…. So, does it mean that “financial freedom” will only be achieved 20 to 25 years from now?
Appreciate your feedback and advice sir….
Thanks