I think I may have done something smart.

Ok, So lets go back to the GFC days of 18 months back and the premium property market in Melbourne is heading south at the rate of knots.

A mill plus property in one of Melbourne's best streets comes on the market and gets passed in. They cant sell it for love or money. Then they try to rent it. No joy. So they try more agents, still no joy.

At the peak of the slump along comes dumb old me. I'd sold my ppor 12 months before (when the market was white hot) and bought a couple of IP's. So, I wanted to buy, but needed to rent.

I agree to rent at their asking price for 2 years. And also agree to buy at their asking price within that 2 years. We sign an option agreement for a non-refundable 30K and I move in.

Fast forward to now. I am sitting on a val (from a panel valuer) that I had done last week for 1.8 Mill. I hold the option to buy for 1.3 Mill. So far I'm pretty pleased with where this is heading.

Here's question number 1: When I go to finance, will the bank look at the contract or the val?

Now I had originally planned on offloading an IP to pay for the deposit for this property.

Here's question number 2: Now given that it appears I've done OK with this option, and my IP is doing OK. I'm wondering is there a way of avoiding selling my IP?

PS1: The IP is worth around 790-800 and carries a mortgage of 550
PS2: Serviceability isn't a problem.

Interested in your thoughts guys. Cheers
Oh there was a slump, I busted my butt off to get my reno finished before it crashed, and luckily got close to my asking price.......houses in that area have only recently recovered to that market rate.
While some places have only gone up, others did feel it.

I was a month off only being able to get what I could have gotten pre-reno, so it was cut close, and luckily many hadn't realised the small dip in the market or foresore the affect it would have on some property values.
When did the Melbourne market slump...it sure didn't around here...all its done is go up!!!!


When I sold my properties starting Spring 2008 through to January 2009. Believe me I couldn't get people to turn up to opens let alone auctions!... and these were very much "high liquidity" properties (apartments and House in inner city).

So I imagine the upper market end would have been even worse.

In fact, I contend there are still some properties that have not moved much in the past 18 months.

The Y-man
If you're looking at a contract that's 1-2 years old there would be a fair arguement for the valuation to be used. If LMI is involved I'd say you'd be hard pushed.

I remember your problems but I think it was in isolated areas, in the north east we were still renting and selling. We were very much affected by the fires, meaning anything that could be sold or rented was just grabbed.

Houses have gone up so much in this area that we are now seeing plus $1m homes as the norm.

As with everything its supply and demand.

I suppose I compare it to Cairns where the sales and rental market simply disappeared.

that's awesome! Will you live in it for 12 months or whatever it is to make it your PPOR so you don't have to pay any CGT?
Well done! I think there's are at least some lenders who'll be happy to lend against the valuation, particularly if you've done some improvements while you've been renting. ;) (Nudge nudge, wink wink - anything look newish?)
When did the Melbourne market slump...it sure didn't around here...all its done is go up!!!!


The Melb market didn't slump; just certain price point properties in certain areas. Like Toorak and Brighton etc.

WhY? because these areas are where everyone wants to be seen and live (except me ;)).

So, as soon as someone moves into a phase of their lives where their income allows it; they buy in. They are suddenly up with the Jones.

But, as we all know, there are many reasons why peoples' incomes are high enough to afford these areas, and sometimes these incomes disappear for different reasons.

This scenario is often a fast-rising and equally as fast declining circumstance. But of course; the person involved never expects the income to disappear.

Hence; they suddenly have too much lifestyle, and not enough income.

This is precisely when you will see the top end properties get sold off for handsome losses.

The beauty of these areas is they can recover just as fast, so if you are ever in a position to take advantage of someone elses misfortune, you can make a lot of money in a short space of time in these areas.

The problem is the entry level to play.

In the lower-priced areas where the incomes are more steady and secure, and there are more people who can afford them, the prices stay more stable.
$1m plus properties in bayside melb def dropped 10-20% in that time,

great negotiations on your behalf, well done.

i am sure you could buy that property with no contribution and borrow 100% plus costs as contract is over 12 months old.

well done:D
Hi ado0902, well done on your deal.

Couple of thoughts (assuming the banks said no to finance on value)...

Idea one. Purchase without finance on a very long settlement using just your 30k down. Renovate and then you can revalue imediately (many banks have this policy but check before you go ahead) . Then organise finance on value. If the worst happens and you cant finance, sell with short settlement same day as your settlement (double whammy).

Idea two. Just sell your option. You've already made your profit, go look for another bargain, make more money :)
Very, very dangerous strategy and assumption that it will happen.

BayView I totally agree it would not be my first choice. If ado0902 cant get finance any other way then the deal or some part of the profit is put at risk. While this tactic is generally risky and ado may have to accept a lower offer to get the terms, I'd imagine its a smaller risk than not exercising the option which ado cleverly took a leap of faith on.