Should I revalue?

[sonic]

Hey guys,

I bought a studio apartment in Potts Point Sydney about 7 months ago. I was pretty happy with the purchase because I had a friend access RP Data before I bought it and I found that there were identical units in the building sold a few months before mine for $160K + and I bought mine for $115K.

Now my loan is with colonial (the no frills product 6.49% p.a. for 3 years introductory rate), interest only.

Ideally I want to get it revalued and draw the extra money out because I have a large margin loan out paying 8.31% interest and would use the money to reduce that loan and save 1.*% in interest p.a. which ends up being a lot

I was wondering if anyone could advise me any strategies I could use to maximise my chances of getting a good valuation with colonial. My mortgage broker basically said you can def. get a revaluation since its past 3 months of your purchase but its basically up to them to what they value it to and it depends a lot on sales in your suburb in the past few months not just necessarily sales in your unit block.

Thanks in advance!

Cheers

Tim

 

[Simon]

I would talking to your margin lender about reducing your rate. I pay 7.8% and you should be able to get similar.

Email me if I can give you some advice on how to negotiate a better deal.

Do you think it more likely that your apartment has gone up, down or steady in value since you financed it?

How much do you currently owe on it? If you still owe a fair amount then it may not be worth the trouble - esp if it takes you into LMI territory.

Cheers,

 

[Trogdor]

Hi Simon,

Sorry to butt in on your conversation!

How can one reduce their margin rate to 7.8%?

I'm paying 8.15% with Comsec/Commonwealth Bank.


Thanks!

 

[Simon]

Hi Simon,

Sorry to butt in on your conversation!

How can one reduce their margin rate to 7.8%?

I'm paying 8.15% with Comsec/Commonwealth Bank.


Thanks!

Ask them to reduce it. I was paying 8.1% and a few emails later we dropped it to 7.8%.

I can send you a copy of my request if you email me.

 

[Trogdor]

Thanks Simon,

I have PM-ed you my email.

Umm.. Also, I assume you are obtaining 7.8% for variable?

I'm going to pre-pay 12 months this June (prior to 31st) in one big lump sum, so does the discount you obtained carry over into a pre-paid rate discount, or is it only applicable to the variable offering.

Thanks again!

 

[Simon]

I dont prepay so cannot answer that question. I am just on the standard variable deal.

 

[sonic]

I would talking to your margin lender about reducing your rate. I pay 7.8% and you should be able to get similar.

Email me if I can give you some advice on how to negotiate a better deal.

Do you think it more likely that your apartment has gone up, down or steady in value since you financed it?

How much do you currently owe on it? If you still owe a fair amount then it may not be worth the trouble - esp if it takes you into LMI territory.

Cheers,

Hey Simon,

Thanks for the info. I took out a interest only loan with Colonial to finance my first unit. Because its a studio apartment I could only finance 80%. I took interest only option and have only paid interest only. IMO the market hasn't moved much in Potts point in the last year although sales volume appear to be picking up in the last 3 months (I go apartment looking in that suburb every 2nd weekend so have a fairly good feel for it). But I"m pretty sure I bought below market value because the vendor was desperate to sell (my strategy is to look heaps make really low ball offers and now and then i get lucky, I make about 50 offers before i eventually buy one) and I accessed past sales prices in RPDATA as mentioned before and units in the same block went for $160K +. I realise there is a fee to revalue but IMO its def worth it because if I revalue even up $30K i can redraw 80% of it and refinance my margin loan and save about 1.8% in interest!

so do u think i should try and revalue?

I actually just bought another one in the area last week exchanged contracts last Thursday. I'm thinking of financing with Colonial again but fixing it for 3 years at 6.65%

Regarding the margin loan i'm with st george bank, i went with them because they have a 70% LVR with a 10% buffer. Its only a small loan though $32K and they are one of the few places that provide 70% LVR for a asgard porfolio (i don't own stocks its a wrap account through a company called asgard). i only have a $32K loan outstanding at the moment on that...

but would appreciate advice on how to negociate a better deal def. will pm you my email

 

[Rolf Latham]

Hi Sonic

Go for the reval, worst case is they say no.................

ta
rolf

 

[alexlee]

Sonic, if I'm reading your numbers right, by re-financing you might save 1.8% on $30k. That's only $540 a year. Are you sure that will even cover the new loan fees, any break fees, etc?
Alex

 

[sonic]

Sonic, if I'm reading your numbers right, by re-financing you might save 1.8% on $30k. That's only $540 a year. Are you sure that will even cover the new loan fees, any break fees, etc?
Alex

yup u are spot on, except i neglected a few facts. the $30K debt will jump to $65K in 1 month when i draw extra funds on the margin loan to come up with the 20% deposit for the second property i exchanged last week.

i prob didn't explain myself properly i'm not looking to refinance my existing property loan, i want to revalue the property to what its market value is, redraw the extra funds and use those funds to reduce the debt on my margin loan (i.e. i called that refinance the margin loan from the home loan) to save interest.

according to my research this is OK with the tax office because i'm drawing on the funds to reduce debt on an existing loan the interest on the home loan redraw is still 100% tax deductible.

just out of curiousity also are there any mortgage brokers who know of a lender who will finance a property 34sqm at cheaper that 6.65% fixed for 3 years with a 20% deposit.

i've done a lot of research + also my mortgage broker is pretty good the best deal i can get is 80% LVR with colonial on 6.65% fixed for an apartment less than 40sqm. i can also go through a building society to get a higher LVR according to my broker (its a small buildling society) but the downside is its 7.3% variable rate interest.

also interested in seeking opinions of experienced investors out there i'm funding my deposit on my units by drawing on my margin loan with shares. i'll be at 70% LVR after my 2nd purchase which i realise is risky but i'm reducing the risk by calculating that

1) that in 12 months i can revalue my properties (i make lots of lowball offers and occasionaly one goes through so i'm pretty sure i buy below market value, i also crosscheck my purchases with rpdata info before i buy to be sure). once i revalue i'll reduce the margin loan by drawing on the home loan.
2) i am paying back principle and interest on my margin loan so its not interest only.
3) i have additional $15K security i can lodge with the margin loan in case something goes bad...

i haven't really heard of anyone else using margin loan redraw to fund deposits, i only used it because it was an easy way for me to get finance...

 

[sonic]

Hi Sonic

Go for the reval, worst case is they say no.................

ta
rolf

true but it costs $300 a pop for a revaluation i wanted to be sure at least i have a reasonable chance of getting it revalued!

 

[alexlee]

Hi, Sonic,
Slightly off topic, but what rent are you getting for that Potts Point studio at the moment?
Alex

 

[sonic]

$175/wk renting to a friend but market rental is about $190-$210 a week.

but nothings for free in life the reason i got it so cheap is that the strata is freaking expensive $850 a quarter. but look at the books and its going into repairs it should revert to $400 a quarter after 3 years tops...

the second one i bought for $158K (exchanged last week). its a 1 bedroom again nothings for free the reason its cheap is there is a brothel next door also the real estate agent was "out of town" i.e. not a local to the suburb didn't really know the prices and based it ont he rental of $150/wk which i estimate is below market. a renovated one in the building went for $240 a week so i'm guessing mine should rent for $200/wk conservatively.

if u're interested in the area PM me your email i know the area pretty well by now i've been looking there for about a year every 2nd weekend and source the real estate websites every 3 days.

i'm more of a yield investor though (i'm asian so i think security is in my blood ) + i want the option to travel overseas which i can still do because the properties don't require too much to service.

 

[alexlee]

but nothings for free in life the reason i got it so cheap is that the strata is freaking expensive $850 a quarter. but look at the books and its going into repairs it should revert to $400 a quarter after 3 years tops...

That's an interesting point. Were most of those strata fees one-off special levies or built into the normal sinking fund payments? It's just that I've never had body corp decrease the fees on my IPs.
Alex

 

[sonic]

That's an interesting point. Were most of those strata fees one-off special levies or built into the normal sinking fund payments? It's just that I've never had body corp decrease the fees on my IPs.
Alex

for the existing unit they are collecting excess amounts in the sinking fund for repairs that need to be done and its in the final phase... the average strata in potts point is about $400-$500 / qtr so i estimate it should drop back after that.

for the second place i bought the strata is also quite high because the sinking fund pretty much empty at the moment, once its collected to a reasonable level i think its going to drop back down. i hope so anyway.

hey alex i read from one of your previous posts you are an accountant in england? i'm thinking of going overseas sometime to work i work in the investment banking industry but in IT. i'm doing a securities institute degree (grad dip in applied finance), from my own research its pretty well recognised in the industry but only in australia not overseas.

do u agree with this from what you have seen in england and tokyo? from what i've talked to with friends if u have a CPA its pretty easy to get a job in england right? i'm mostly keen to go to shanghai do u know much about the place there?

 

[alexlee]

Is the sinking fund empty because the building is new or because it was used for previous repairs? I've always thought the sinking fund is for anticipated future repairs. It'd be surprising if they suddenly dropped the sinking fund contribution because you'd think you want to prepare for future repairs. Put if this way, if I saw a body corp report that showed low contributions but low sinking fund balances, I'd be worried about future special levies.

Has anyone else ever had the body corp contributions decreased?
Alex

 

[alexlee]

hey alex i read from one of your previous posts you are an accountant in england? i'm thinking of going overseas sometime to work i work in the investment banking industry but in IT. i'm doing a securities institute degree (grad dip in applied finance), from my own research its pretty well recognised in the industry but only in australia not overseas.

do u agree with this from what you have seen in england and tokyo? from what i've talked to with friends if u have a CPA its pretty easy to get a job in england right? i'm mostly keen to go to shanghai do u know much about the place there?

Agree, no one really knows the Securities Institute qualification overseas. I have a SIA grad dip as well as the CA and people only look at the CA qualification. People in Tokyo and London tend to go for the CFA (much more prestigious than the SIA - fair enough since it's 100 times harder to get).

England doesn't have enough accountants, so generally, yes, it's pretty easy to find accounting jobs. I've never had problems and I've been here twice.

Don't know much about Shanghai, though friends who work there in banking all say it's the new frontier with lots of fortunes to be made. I'm sure that's true, but right now every person and his dog is going, so there's lots of competition as well.
Alex

 

[sonic]

Is the sinking fund empty because the building is new or because it was used for previous repairs? I've always thought the sinking fund is for anticipated future repairs. It'd be surprising if they suddenly dropped the sinking fund contribution because you'd think you want to prepare for future repairs. Put if this way, if I saw a body corp report that showed low contributions but low sinking fund balances, I'd be worried about future special levies.

Has anyone else ever had the body corp contributions decreased?
Alex

from what i found in the strata records the sinking fund was empty because they weren't collecting for it and due to change in strata by lawas they neede to plan for it in the future and make sure its healthy...

 

[alexlee]

from what i found in the strata records the sinking fund was empty because they weren't collecting for it and due to change in strata by lawas they neede to plan for it in the future and make sure its healthy...

In which case wouldn't you expect the body corp to err on the side of caution and collect as much as they can for the sinking fund? They have no incentive to decrease the sinking fund especially if they can justify it legally. There's no harm to them having too much sinking fund but decreasing the levy might get them in trouble. i.e. I wouldn't expect the levy to go down unless all the owners voted for it.
Alex

 

[sonic]

In which case wouldn't you expect the body corp to err on the side of caution and collect as much as they can for the sinking fund? They have no incentive to decrease the sinking fund especially if they can justify it legally. There's no harm to them having too much sinking fund but decreasing the levy might get them in trouble. i.e. I wouldn't expect the levy to go down unless all the owners voted for it.
Alex

good point when i bought it i figured i can afford the current strata and it decreasing in the future it would be a bonus. from the last strata meeting everyone seems to grip about the fees so once the sinking fund is pretty full (and it will get there quickly within a few years if levies are kept as they are), i suspsect owners will vote it down.