Property Portfolio Building Step 4. Purchase a second property using the equity built up in the first property as a deposit

Tapping into equity built up in your first property is a tried and tested method for finding the deposit for your second property  If you're looking to do this, you should be prepared for when your lender comes to revalue your property,  the best way to get the most out of its valuation is to keep it well maintained.

"By maintaining your investment property, the value stays up to scratch and this means that you can make the most of the revaluation".

Making any changes to your financial position – such as buying a second property and getting another investment loan – offers the perfect opportunity to give your existing mortgage a health check. So, before searching the property market, take some time to reconsider your loan needs in relation to your future goals and ask yourself how well your current one is performing for you. If you're satisfied with the service your lender is providing and you have determined that the interest rate and fees you’re paying are competitive, there is little reason for you to spend time and money refinancing with a different lender.
If you've reassessed your financial situation, however, and your mortgage is no longer working effectively for you, the next step is to decide whether you're going to refinance your current loan (while taking out a second one) with your current lender or start afresh with new one. Your first move, then, should be to  analyse your cash flow and establish the right approach to your debt as an investor with two loans.
 A second mortgage is going to have a significant impact on your monthly cash flow, so make sure you're in a position to service both of them by having a stable income. From the lender's point of view, the key to minimising risk as a borrower lies in your ability to earn enough income to service your first and second mortgages successfully on top of the cost of living. This not only ensures you're ready to take on a second mortgage, but it also satisfies your lender's requirements for approving the additional finances. As you're buying for investment purposes, it's essential to get your hands on a rental estimate letter from a local real estate agent. The lender requires this letter at the application stage and it's important to keep in mind that it's unlikely that your lender will take 100% of the rental income into account as part of your serviceability calculation. They generally factor in around 50–75%, depending on the property type and its location.
As you are planning to use your existing property as security to fund the deposit for the second one, bear in mind that you are putting yourself at risk of losing both if you find you can't meet the repayments.This is why it's essential to have a strong contingency plan. Depending on your ability to save, a safety buffer could come in the form of three to six months' worth of repayments and living expenses.