Derelict Property finance - Melb Metro

GreyGhost

GreyGhost

Morning guys and gals.

I have come across a property which I'm interested in that is not listed.

Property is located under 30km from CBD.

House has been broken into and holes put in the plaster, kitchen and bathroom damaged.

They recently boarded it up to avoid any further damage.

Owner was weighing up whether to claim insurance, fix it and then sell or sell as is.

Rent $310pm min.

So:
$250 purch
$11K closing costs
$15 reno
$276K total cost

5.84% yield

Potential equity:
MV $320 - Total Cost $276K = $44K

Suburb is averaging 4% capitalised growth.

There is not a huge margin in this, but might be an okay set and forget project.

Issue is this:
I don't believe banks will finance a property that is not habitable....
We don't have enough equity to buy it outright, fix it etc, then draw equity.
Was considering partnership with a friend, but then the returns would also be halved!

I was thinking about signing a contract with immediate access to the property, spend the 15K on it, then get bank to val for finance?

Does anyone have any advice on how we could structure this deal?....

Many thanks in advance
 
It's not that hard to finance a property that's uninhabitable, the catch is you've got to pay the right price for it.

If it's going to take serious repairs, you need to factor the cost of this into the purchase price and have a strategy of how you're going to fund these repairs right from the start. You may have to pay cash for the repairs (depends on the deal).

There is a good chance that even if you renovate the property, the bank will still only fund based the purchase price. There's also a risk that you'll spend time and money getting the property habitable and then the vendor will find a way to not settle, leaving you with nothing.
 
lol - I read the title and expected you to be asking if anyone had used/heard of a company called "Derelict Property finance"

Cheers

Jamie
 
Jamie M said:
lol - I read the title and expected you to be asking if anyone had used/heard of a company called "Derelict Property finance"

Cheers

Jamie
Click to expand...

thats what I thought and thought, thats either a brilliant or terrible marketing strategy

I recall there used to be a online perfume shop called 'YOU STINK'
 
I do a lot of these kinds of deals, certainly possible to finance, including burnt out properties. It comes down the price paid, expected LVR, location etc. Many ways to skin a cat.
 
I bought an uninhabitable property once... From memoryu Had to show the bank a quote to fix and prove i had the cash to do it
 
Terry_w said:
Whats land value>
Click to expand...

Our son's recent purchase hit troubles when the valuer refused to place a value on the house due to a few floorboards missing, and obvious old termite damage.

At time of the valuation it still had a kitchen and bathrooms. So, with the bank not prepared to assign any value at all, they lent only on the land value.

House will be substantially renovated and improved, but until then they cannot get a housing loan to do those renovations, and will be taking out a construction loan. Part of that is due to them having had the asbestos removed so now there is no kitchen and no bathrooms. No way would a bank look at it now.

But I was shocked that a couple of missing floorboards in a house that clearly is quality, had an ugly but functioning kitchen and two bathrooms, and clearly was being worked on meant problems early in the game.
 
wylie said:
Our son's recent purchase hit troubles when the valuer refused to place a value on the house due to a few floorboards missing, and obvious old termite damage.

At time of the valuation it still had a kitchen and bathrooms. So, with the bank not prepared to assign any value at all, they lent only on the land value.

House will be substantially renovated and improved, but until then they cannot get a housing loan to do those renovations, and will be taking out a construction loan. Part of that is due to them having had the asbestos removed so now there is no kitchen and no bathrooms. No way would a bank look at it now.

But I was shocked that a couple of missing floorboards in a house that clearly is quality, had an ugly but functioning kitchen and two bathrooms, and clearly was being worked on meant problems early in the game.
Click to expand...

It really does depend on the lender, the position of the client etc.

I've put quite a few through with lovely valuers comment such as 'severe structural deterioration', structurally unsound decking, lack of flooring, holes in walls, non structural fire damage etc. The right lender will generally allow these past the gates if you can show a funds position to repair these issues.
 
Last edited:
Corey Batt said:
It really does depend on the lender, the position of the client etc.

I've put quite a few through with lovely valuers comment such as 'severe structural deterioration', structurally unsound decking, lack of flooring, holes in walls etc. The right lender will generally allow these past the gates if you can show a funds position to repair these issues.
Click to expand...

You are right. Our son pushed for a different valuer but the bank would not look at that option. It doesn't matter as they were only going to pay me back and that will happen once they do their big renovation and can get it financed.

However, without family money they would have been in a pickle and would have had to go to another bank who used a different valuer.
 
S1mon said:
I bought an uninhabitable property once... From memoryu Had to show the bank a quote to fix and prove i had the cash to do it
Click to expand...

Yep - that's one way to mitigate it.

If there's valuation required - the valuer usually mentions that it would cost $x to repair the property. If client can demonstrate they have those funds available then that can get around the issue.

Cheers

Jamie
 
The real question is what do you think it's worth. Rates notices are usually significantly less than market value.

For what it's worth, ANZ will take the contract of sale on loans up to 90% if the purchase, broker and property are all in the same state.
 
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