Is this the norm

[j_p]

So I bought a block of land and I am building a house on it (IP2), pretty basic!

As was the valuation; Valuation = Build cost + Land cost

Over the six months or so that it has taken for the title and settlement the land value has increased and has been revised by the bank, the overall valuation figure has not been revised. Which has reduced the valuation of the build portion of the project meaning the bank wants some more dollars for the leverage to be the same for the build portion of the loan.
This isn't really a problem, happy to put in a few extra $$$ and good to know the land has increased in value (according to the bank at least). Just curious to know if this is a "normal" or regular occurrence.

 

[Paul@PFI]

Will they allow an offset ?? That way when its complete you can pull the $$ back and restore deductions ??

 

[tobe]

um, no Paul, its not a matter of offset, its a matter of security value and LVR.

It is normal with House and land. Have you seen the new valuation? The valuer may have increased the value for the build, but the bank only lends up to the cost of the build.

Dont assume you will be able to draw the equity later, new property refi valuations are generally short, especially in outer suburban new estates.

Try asking the bank to use the old val, or get a second opinion from another lender/valuer.

 

[j_p]

Thanks Tobe, your explanation is nice and concise. The amount isn't that large so it doesn't worry me. I wanted to know for future reference when it might be a problem if the difference was substantial, so your insight is exactly what I wanted.

Hopefully it keeps growing and will fund another purchase

 

[tobe]

dont count on it growing for at least the first 5 years I reckon.

Where is it located?

 

[j_p]

In Victoria, 3217. Not convinced that new estates are the best way to go, however I'm hoping to in the short term;

a) Enjoy a good depreciation schedule
b) Minimise up keep for a few years
c) Gain experience in doing a build in a simple way

Long term I think the area will do well enough and it should be neutral to positively geared. If it funds another IP in 5 years I won't be unhappy. Slow and steady is fine by me, not that I'd complain if it did better.