How a bit of knowledge and 2 phone calls add $25,000.

[alwayscurious]

Not really renovating - but still adding value. Mods - feel free to move this to somewhere more appropriate if necessary.


Hi there: an interesting story for you. Hopefully some take away lessons for those who are starting out.

I am involved in purchasing a PPOR property - which should settle on Monday.
Part of the deal involves selling a PPOR and removing security from a loan & LOC which
is Cross securitised with an IP in Logan.
(yup, messy).

Bank 1.
Loan 1 old PPOR &IP1
LOC old PPOR &IP1
Loan 2 old PPOR &IP1

So, in removing the security from the bank 1, they had to keep both:

LOC IP1
Loan 2 IP1

No bank likes losing security!

So they revalue IP1.

What could happen here? The valuation could be reasonable, based on current market conditions and based on an ob
or it could be savage, and we would have to reduce LOC down to an unacceptable level to satisfy
the banks LVR situation.

In this case, the Valuation came in savage - at least 25K below market value, (280K, instead of 300-310K that is being asked and got right now)
Also the rental value was $30/week under what is being asked and achieved right now.

PROBLEM: I have to now tip in money to Loan 2, or reduce the LOC to a limit that is BELOW what is currently drawn down!

Yikes! I talked with the Mortgage Broker, and then made some phone calls to a friendly real estate agent in the area.
They ordered a Department of Natural Resources Search - the data is 90 days newer than the RP data, and showed much higher
settled sums.

NB - PM me for the details of the real estate agent or Mortgage broker.

They gave me 5 cases that were comparable or higher, and we supplied the rental statements and rental proposal letters,
and queried the valuation.

Hold your breath:
The 2nd valuation, supplied with the right data, came in at $305K - which the bank accepted and they are going to use.
Our LOC is safe, and we have still headroom, our PPOR purchase is safe.


Lessons learned:
1) Don't Cross Collaterise if you can avoid it - and if you want to do a repeatable business of accumulating investment property.
(NB - I did this initially because I had $100 deposit on IP1, the rest came from equity - but it COULD HAVE been avoided)
2) Team: Have relationships with friendly real estate agents and knowledgeable brokers, and keep them sweet.
3) Almost all Problems can be overcome, they do have a Solution - we may not know it just yet.
4) Money is just an idea. (Try as they might - Valuations ARE subjective, not objective)

Hope that helps someone out there:
Cheers,
AC

 

[sue78]

They ordered a Department of Natural Resources Search - the data is 90 days newer than the RP data, and showed much higher
settled sums.

Thanks for sharing that....glad everything is ok now.

The banks actually have access to that information. Recently, I was speaking to the mortgage centre Westpac and needed a valuation done on an IP urgently, however their valuers had a backlog (typical!). I asked the lady if she can delay the inspection and also do a valuation based on recent sales or just based on land value! It's a new IP and really just the land that has gone up.....so in a matter of minutes whilst still on the phone, she said that she has recent land sales in the area and from BCC and gave me a new valuation on land alone. I never needed that valuaton from the valuers after all.

 

[LynnH]

alwayscurious

Thanks for that info!!!

We had to appeal against a valuation last year - got data from every place imaginable (it took me days!) and convinced the Bank that their valuer's valuation was waaaay too low. Fortunately they agreed with us.

SO much simpler just to do a DNR search - and what a timesaver!

Cheers
LynnH

 

[Alanna]

We always provide the valuers with a file of relevant information, showing comparable sales, building replacement values, rateable values etc. This saves them lots of legwork and you can be sure that a decent val will be had every time. Have not yet had a valuation come in under what we told the bank it is worth.