Your borrowing capacity will be determined by a number of factors which include:

• Cash deposit available
• Equity in existing property assets
• Experience
• Debt Servicing Capacity
• Quality of the asset being purchased

It is possible to borrow against existing property assets rather than sell these to free up equity. Particularly with leasehold purchases the capacity of these assets to service debt means that many purchasers choose to retain property assets and borrow against these to raise the deposit necessary to complete the purchase. The following scenarios are designed to give you a very broad idea of the way in which cash equity and geared equity transactions work.

Leasehold Scenario : Cash Deposit

• Purchase Price $600,000
• Costs Estimate $36,000
• Total $660,000
• Deposit $360,000
• Loan $300,000 @ 50% gearing x 10 years
• Repayments $47,574 per annum @ 10% P and I
• Net Profit $168,000 @ 28% ROI
• NP after debt servicing $120,426

Leasehold Scenario : Gearing on Equity in Property

• Motel Lease Purchase Price $600,000
• Costs Estimate $60,000
• Total $660,000
• House Value $580,000 / Mortgage $80,000
• $580,000 x 80% gearing = $464,000
• Less $80,000 mortgage = $384,000 available
• Total Available
• $600,000 @ 50% gearing = $300,000
• $580,000 @ 80% gearing less existing debt = $384,000
• Total funding available = 684,000
• Total funding required = 660,000
• Excess available for working &fall-back capital = $24,000

Debt Servicing Scenario : Gearing On Equity in Property

• Business Loan $300,000
• Repayments $47,574 p/a @ 10% P and I
• Housing Loan $464,000
• Repayments $37,120 p/a @ 8% Interest Only
• Motel Net Profit $168,000 p/a @ 28% ROI
• House Rental Income $23,200 p/a @ 4% ROI
• Total Income $191,200
• Total Debt Servicing $84,694
• Income after debt servicing $106,506

* Interest rates have been deliberately modelled above market to demonstrate capacity of the asset to carry debt at higher rates.