Creating equity before settlement

Discussion in 'Adding Value' started by melzinoz, 17th Aug, 2013.

  1. melzinoz

    melzinoz Member

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    Hi Guys, forgive me if I am naive, I am pretty new to all of this! :)

    I just wanted some insight/opinions on creating further equity from improvements during settlement.

    I have made an offer on an IP property and am thinking, while the inside is great, adding some street appeal might boost my rental income and since Im at it, capital.

    I have read in various property mags people negotiating access during settlement can be beneficial in getting renos done both before moving new tenants in and also I have heard of people having their property revalued before settlement and being able to access extra equity.

    Can you please explain how this works? Any advise/tips/tricks/cautions would be appreciated. I get the concept but unsure of the actual process etc....

    Thanks
     
  2. Aaron_C

    Aaron_C Finance Broker

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    If you can negotiate early access, then great. Unlikely. As for accessing equity prior to settlement, it won't happen. It has to be after.
     
  3. Jen_PFR

    Jen_PFR reno victim

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    We've negotiated access prior to settlement on our last few purchases. There are some key points you'll need to keep in mind:-
    1. The property needs to be empty. This won't work if there is still someone resident there.
    2. We typically put in our offer & acceptance that we are seeking access on approval of finance, with no structural changes to occur. You can put in quite specific works to be done (eg painting throughout, replacement of floor coverings/window treatments etc). Of course early access also means you're able to do things like get trades in for quoting purposes etc.
    3. Be prepared for the agent to tell you to your face that they don't support it and will be advising their vendor to that effect.
     
  4. Colin Rice

    Colin Rice Perth Mortgage Broker

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    I arranged finance for a client who secured early access to the outside of the house only as the yards where a mess and needed to be cleaned up & basic landscaping.
    Seller wouldn't allow access to the inside as he was living there. I agree with point three above and will probably come down to the agents attitude or lack there of! Agent would need assurance that finance approval is likely so a broker with strong communication skills could help.
     
  5. westminster

    westminster P Plate Developer

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    Also if you intend to do this get advice from your accountant as doing many of those things before a tenant moves in makes them not tax deductions.
     
  6. melzinoz

    melzinoz Member

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    Thanks! The house is vacant and Agent seems like he would be supportive of it... the current owner is an investor also (who brought it burnt out and renovated the inside - the outside is tidy but I would like to render the front and do some basic landscaping) so, him being an investor may or may not work in my favor?...

    If I do manage to get in early and do my bit ... then what? I wait for settlement and do I get a private valuation? With my last house the bank told me unless there was significant proof of the value increasing they wouldnt perform a valuation within a year? Is their different rules with renos or is that not the norm?

    Thanks again
     
  7. Prop_Perspectiv

    Prop_Perspectiv Member

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    There was also a thread on here a while ago about the legal implications of early access. I would do minor renos in an early access deal but nothing major before settlement.

    Talk to your lawyer about it as well.
     
  8. Dylan33

    Dylan33 Member

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    We got in early , before settlement on our last IP. Had to pay a few grand extra on the purchase price but they used it as a negotiating tool. So would have used something else anyway if we hadn't asked for it.

    The REA had an official looking document for us to sign stating that we were only allowed to prepare and paint, also do minor repairs. So a document exists somewhere? Maybe ask your solicitor?

    I got in with a Wagner paint sprayer and sprayed 3 rooms and ceilings in a few days. Gave us a huge head start.

    It's worth pushing for it.
     
  9. MRO

    MRO Member

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    What happens when the vendor doesn't settle and you have spent time and money.

    I know the legal options but still adds some risk when spending on a property when you don't legally own it yet.
     
  10. Dylan33

    Dylan33 Member

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    Yeah! There's always a risk they'll pull out but that's something you have to weigh up. There's risk in everything to do with investing. This is just another thing to consider.