How to get a loan for under valued property?

Mrman

Mrman

I have the opportunity to by a property that is a private sale. It is situated in a new development that was formerly a housing trust area. Most of the blocks around it are empty and are for sale as house and land packages.

RP Data says it is valued between 127,000 and 147,000. Its a 3 bedroom on 940m2 but all the blocks around it are about 450m2.

The block accross the stret can be bought for 243,000 with a brand new house that comes with free fencing and landscapng.

The owner was asking for 220,000 neg but after a bit of bargaining he wont budge lower than 200,000.

It is over priced at the moment but in a few years when there are brand new houses literally surrounding it, I can't see how it isn't a good investment. The problem is getting the bank to give me the loan as I know the valuer won't think it worth 200,000 as it needs a bit of work. A masionette down the street that has had a few renovations is going for 185,000.

What are my options?

Thanks
George
 
You're asking how to move forward with an overpriced undervalued purchase? :confused:

Maybe tip in some cash or move onto an undervalued property that isnt overpriced?
 
I know it may seem stupid but looking at the bigger picture it would be worth it in the end. Blocks that are 450m2 are going for 90,000. Oh well. No worries

I guess we move on to the next deal:D
 
I presume you are thinking of subdivision? Can you subdivide without tearing down the house?

If you have to tear down the house, and you can do that and get approval for subdivision for no effort & cost then you are overpaying by 20,000.
 
If you are that confident commission a valuation and use the power of persuasion to push the valuation up a little. Obviously you will need supporting data to do this
 
Unfortunatelly the house is in the middle so no subdivision unless knock down but I would want to subdivide until further down the track. It is tennanted till feb 08 anyway and would probably lease for another 12 months before doing anything.

What would it cost for a valuation?

The yard is a bit of a mess. I'm sure if it was cleaned up a bit it would help but can't really do that myself and don't think the owners are willing to spend anything on it.

Never though of buying the blocks. Obviously there wouldn't be any income but how much capital gains could be had from just land.

Another option is a house and land package for 243,000 accross the street but i'm not sure about that. Would probably get good rental return and depreciation but haven't done any calculations/research.
 
Are you saying the land is worth around $180K with that much land plus there is a house on it? Is this how the vendor is valuing it?

How are you valuing it exactly?

The masinette down the road is on how much land?

Have you actually had it valued by the bank or are you just walking away based on assumptions in your own head?

What would it rent for if you did a quick cosmetic reno?

I am confused by how you are reachng your numbers.


Mrman said:
I have the opportunity to by a property that is a private sale. It is situated in a new development that was formerly a housing trust area. Most of the blocks around it are empty and are for sale as house and land packages.

RP Data says it is valued between 127,000 and 147,000. Its a 3 bedroom on 940m2 but all the blocks around it are about 450m2.

The block accross the stret can be bought for 243,000 with a brand new house that comes with free fencing and landscapng.

The owner was asking for 220,000 neg but after a bit of bargaining he wont budge lower than 200,000.

It is over priced at the moment but in a few years when there are brand new houses literally surrounding it, I can't see how it isn't a good investment. The problem is getting the bank to give me the loan as I know the valuer won't think it worth 200,000 as it needs a bit of work. A masionette down the street that has had a few renovations is going for 185,000.

What are my options?

Thanks
George
Click to expand...
 
GoAnna, I'm not sure if the land is worth 180k but yes a block half its size close by is for sale for just over 90k so this block if it was without a house, should theoretically be just under the 180k mark.

I'm not sure how the vendor is valuing it but as for myself, the RP Data figures I mentioned earlier are obviously low because most of the properties sold in the area (mainly maisonettes) were bought cheap by either the public or the development company and knocked down.

I'm sure with a quick reno, 200 p/w rent should be achievable.

I'm guessing by your post that I'm obviously giving up too easy before I even know if it is possible to buy it.

What should I do?

Get an independant valuation done and present it to the bank or just make the offer to the vendor which I'm sure he would accept and let the bank value it?

I'm relatively new to property investing so I'm sort of going off the deep end but being on here I've learnt that the best way to learn is to do and experience things.

Thanks
George
 
hi george
there are two types of valuation
one when you want to know the true value of a property in an area
and then a value you want for a property
usually if you are refinancing and you want to draw out equity or cash.
if you are buying for me
you don't want to push up the valuation you want the true value as you are buying for that price.
now there is a very big difference between price and value
the price is a negotiated item and you can move it up or down.
value is value to you.
so you can and usually do have
two prices
yours and the vendor
and two values
yours and the valuer.
if you think this is going to go up then for me you should take the valuers value and put up the money to the negotiated price.
and then if the value does move as you think
you can refinance latter.
if you do it the other way
and up the value
the problem is that you think you have a property worth x but in reality its worth less Y
and thats not a place I would recommend some one starting out to be in
as you are (again in reality) in a negative equity position
I am all for positive equity positions.
its great to get a valuation that you want and gives you a warm fuzzy feeling.
but you buy at market or below
or if you buy above market
the property must be able to show that very soon after purchase it gains alot in your plan for that property
and growing in the future is not one of those criteria.
developing maybe
or very rapid demand
but as you have said that the other blocks are vacant that does not show that with in 6 months this area is going to do a 45% growth.
I haven't got a clue with regards to this area that you are looking at and would look at it very carefully before buying.
my .002
 
Ok my thoughts.

You are unsure of the real value of this property and are only guessing. Much of its value is potential in any improvemenst to the house or subdivision.

On that basis you are looking at the idea of even buying it above market.

The return at best would be 5% and more likely less.

I can't really see where the money is in this deal as it is going to cost you to hold and it doesn't sound like there would be much profit in a subdivision or a subdivision and build.

So I am assuming that the only possible way to make money on this is growth but if you are buyig over market the this would be delayed as well. And in addition it would be costig you to hold it.

If I were you I would walk through the proces, pay for a valaution, work out how you would fiannce it, do all the numbers (purchase plus onging cash flow and any future profit predictions) and prove to yourself (and us if you like) whether this is a good or bad deal. This will cost you a valuation fee but it could be an invaluable experience. Chat to the valuer. Find out how they view the property in relation to those around it. Choose a valuer that is on many bank panels so that if you do decide to go ahead with the purchase it might be possble to base it on this valaution.

Talk to local agents (from a different firm), talk to to property managers. Get a feel for the whole thinng.

Its not so much that i think you are walking away too easy its ust that I am not sure what you woudl learn from just walking away. You are basing your actions on so many assumptions. You need to test those numbers and see where the numbers lead you.....

Hope that provides some food for thought.






Mrman said:
GoAnna, I'm not sure if the land is worth 180k but yes a block half its size close by is for sale for just over 90k so this block if it was without a house, should theoretically be just under the 180k mark.

I'm not sure how the vendor is valuing it but as for myself, the RP Data figures I mentioned earlier are obviously low because most of the properties sold in the area (mainly maisonettes) were bought cheap by either the public or the development company and knocked down.

I'm sure with a quick reno, 200 p/w rent should be achievable.

I'm guessing by your post that I'm obviously giving up too easy before I even know if it is possible to buy it.

What should I do?

Get an independant valuation done and present it to the bank or just make the offer to the vendor which I'm sure he would accept and let the bank value it?

I'm relatively new to property investing so I'm sort of going off the deep end but being on here I've learnt that the best way to learn is to do and experience things.

Thanks
George
Click to expand...
 
Mrman said:
I have the opportunity to by a property that is a private sale. It is situated in a new development that was formerly a housing trust area. Most of the blocks around it are empty and are for sale as house and land packages.

RP Data says it is valued between 127,000 and 147,000. Its a 3 bedroom on 940m2 but all the blocks around it are about 450m2.

The block accross the stret can be bought for 243,000 with a brand new house that comes with free fencing and landscapng.

The owner was asking for 220,000 neg but after a bit of bargaining he wont budge lower than 200,000.

It is over priced at the moment but in a few years when there are brand new houses literally surrounding it, I can't see how it isn't a good investment. The problem is getting the bank to give me the loan as I know the valuer won't think it worth 200,000 as it needs a bit of work. A masionette down the street that has had a few renovations is going for 185,000.

What are my options?

Thanks
George
Click to expand...

Based on the info, I assume the property is in the Northern suburbs.

I would ask, what makes you think the RP Data value of $127-$147k is correct? They only base this on figures from the council/govt., and are usually waaaay below actual market price.

From the info you've given, it sounds like the house is worth $200k give or take a few thou, and would probably be a pretty good buy at that price if it is surrounded by new development as you say. The price the semi down the road achieved proves this. With 940m2, depending on the shape of the block - you have potential for 3 dwellings.

Of course these comments are made without seeing the actual house in question - I assume it's relatively liveable and doesn't need $20k worth of repairs/maintenance.
 
Steve,
The area is in Salisbury North between Waterloo Corner Rd and the RAAF Air base at Edinburgh. Also the new Northern Expressway will only be a few kms away.

Yes i know the RP Data value is low as it goes by recent sale in the area and most sales were the old SAHT homes which were sold off really cheap.

I have seen the outside of the house which is in resonably good condition but the yard needs a bit of a cleanup. The usual overgrown lawn/weeds, corrogated iron fence falling over etc.

It is currently tennanted so obviously the tennants aren't too concerned as they are probably paying below market rent but I don't think it would need a great dela on repairs. Just the usual clean up and paint.
 
Mrman said:
The property is in Hawksbury Park.

http://www.hawksburypark.com.au/
http://cweb.salisbury.sa.gov.au/manifest/servlet/page?pg=8625

The project has been going on for a a few years now and this property is in the Stage 5 area of the development.
Click to expand...

Oops, didn't see this post.

Judging by the recent sales in Salisbury North of similar land sizes the $200k may be about $10k too high? Hard to say though as the market is moving quite quickly at the moment, and the land still has a house on it as opposed to vacant block. Personally I think $200k seems reasonable.

Also nice to see mass amounts of land throughout the streets being redeveloped which will bode well in 5yrs time when the majority of the suburb will be new.
 
Mrman said:
Steve,
The area is in Salisbury North between Waterloo Corner Rd and the RAAF Air base at Edinburgh. Also the new Northern Expressway will only be a few kms away.

Yes i know the RP Data value is low as it goes by recent sale in the area and most sales were the old SAHT homes which were sold off really cheap.

I have seen the outside of the house which is in resonably good condition but the yard needs a bit of a cleanup. The usual overgrown lawn/weeds, corrogated iron fence falling over etc.

It is currently tennanted so obviously the tennants aren't too concerned as they are probably paying below market rent but I don't think it would need a great dela on repairs. Just the usual clean up and paint.
Click to expand...

Yeah, that's where I thought it was. Some of the sales figures that are coming up may skew the results as there is a lot of vacant land around those few blocks?

Seems good to me, especially if it's more labour intensive than expensive repairs. I had to have a whole backyard of about 150m2 done about 2yrs back at Davoren Park. Got Jim's mowing out and cost me just over $2k to have the whole area stripped back and removed (weeds up to your waist), about 30m2 of pavment de-weeded, and instant lawn planted over the whole area.

On an old place you would'nt be putting in new lawn, so you'd probably get off with paying Jim's $500 to clean the backyard up, then just the cost of the fence to repair (or replace if really bad, but hopefully now). Would'nt put me off a good deal.
 
Well I could probably contribute 15k deposit meaning I would only need to borrow 185K which is 92.5%. Should i get a valuation done or leave it to the bank.

As for the cleanup, i can get a few friends over on a weekend so no worries there.
 
I would'nt bother with a valuation as long as you are comfortable with the price you're paying. I'd guess the valuation will come in at $180k anway, so it would'nt do you much good. If you sign a contract, the bank will send in their valuer for you free of charge, but generally speaking they should just sign off on your purchase price.

Looks like a definite lack of supply there at the moment too - only semi's, brand new houses, or old ones on blocks not big enough for development.

lol, better you than me in the garden :eek:
 
Remember that story? - they're giving away land in Salisbury.

There was an editorial in the Advertiser the other day that said "in the northern suburbs fewer than three people in 10 have full-time employment." I've only met 2 people from Salisbury, and they are both at least 2nd generation unemployed.

$200 per week for an ex-council house surrounded by empty blocks that have been knocked down, are you sure this isn't a bit optimistic?

That's only a tiny bit cheaper than I pay in rent my house on a block about that size 2-3km from the CBD and I don't have to worry about my car being stolen or people doing burnouts down the road every night.
 
Yes we all know the demographics of Salisbury. $200 is a bit optimistic but not impossible. Maybe in the short term yes.

There are always options like multi-letting. Anyway just getting opinions at the moment from all you experienced investors.

All coments appreciated:)

George
 
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