Valuation trouble

[Shann]

Look forward to reading your opinions,

We had our properties (in small regional town) valued for refinance in Nov 2008.
PPOR $195 000
Rental #1 $160 000
Rental # 2 was under construction (removal home) but is next door to and in better condition than # 1, construction is complete.

PPOR was previously rented at $190 per week, Rental # 1 is currently rented at $170pw and has had no vacancy in 18 months. Rental # 2 was rented on date of completion for $175pw.

The cheapest house in town currently listed is $158 000. A similar property to our rentals sold last month for $152000 (sale price not listed price).

We are waiting finance approval on a very attractive property. No problems on valuation and contract price.

We have been BURNT on new valuations!!

New valuation has come in at
PPOR $190000
Rent #1 $120000
Rent # 2 $125000

We are mystified. The market has slowed post crash but not come to a halt. Rentals are in demand. Properties are well maintained (both have entirely new fitouts). The are within 30mins of a town with good facilities.
We would have estimated that prices in the area post GFC have dropped 10% particularly in the upper price bracket. There have been NO sales at this level in this town for years. We estimated that the properties are conservatively worth about $145000 each (sale price with a slightly higher list price).

What can we do re these valuations? Can we appeal? Pay for our own valuer? We can't proceed as is and stay under the 80%.

What is the best approach for us to take if we feel the valuer has not correctly valued the properties?

Alternatively - do valuers often get it wrong? Possibly we don't know as much about it as we think we do. Perhaps we should walk away from the new deal and spend some time paying down the loan (We owe $300 000 in total on all 3 props and are trying to borrow 100% + costs on new property) and wade in when we have a bigger deposit to meet 80% LVR.

What would you do? Appreciate you sticking it out if you are still reading.

 

[Bradsdad]

Your main problem is that there appear to be no comparable sales in the area. Withought such ammunition you'll struggle to get the lender revaluing them. Try and talk to all the agents in the area and see if you can come up with anything recent.
You could look at refinancing the lot and using another lender but 1st of all you would need to ensure they used a different valuer. Secondly you run the risk of the valuations still coming in short.

Have you considered paying LMI to enable the new purchase to proceed? If the deal is good enough it maybe a necessary evil.



Regards

Steve

 

[depreciator]

Shann, the low val is probably a reflection of the fact that banks have become more circumspect and valuers more cautious.
Your best shot, as Steve said, is to do some research on comparable sales and send it to the valuer. Was the recent valuer the same one who did the 08 vals?

 

[josko]

Welcome Shann,

Listing price is very different from selling price.

Do you have any data on properties recently sold in your area or even street?

Valuers get it wrong all the time, but more than often they are instructed by the bank lending you money to give a realistic valuation as if you had to sell the property in a hurry tomorrow.

A house might get $156k eventually but if the bank was forced to repossess your house...how much would they get for it now.

You could try another bank and hence another valuation but you need to make sure the different bank does not use the same valuer.

Your option would be to source the bank and approach a valuer on their panel. You will need to make sure of two things.

1. You are not using the same valuer.
2. The bank will agree for the valuation to be reassigned.

Land size will be a significant factor.

From the figures you give here, you have 48k to play with. (80%LVR of property portfolio).

If you found a house for $125,000 it seems you would have more than enough to cover S/D, deposit and fees.

 

[Qlds007]

As has been mentioned i think i would be looking at an alternative valuation.

Only trouble is that in some of the smaller regional areas many lenders use the same valuer and you may well find that the next bank you go to will use the same valuation firm.

Are aware of who did the report ? Was it an internal inspection or merely a driveby.

Just remember the way you have set out the loan structure all of the loans will be cross collateralised and if values do not improve according to your lender in the future you are merely digging a deeper hole in staying put.

 

[Shann]

Thanks for your assistance,

It appears the valuer did a drive-by only as he did not collect the key from the managing agent.

Our broker is chasing the bank re getting the valuation reviewed. We have contacted our managing agents for info re recent sales figures. We have only the comparible property in OP at the moment though are contacting the other agent in town. The houses are 2 bedder on the lower end of town which is why not many comp sales.

Changing banks is tricky as much of our current loan is at a fixed rate (never again) and there may be a break cost - broker is chasing this up also.

LMI is an option but quite a chunk out of our bottom line. We are considering this also.

A family member floated the idea of a partnership arrangement a few months ago which we didn't follow up. We are considering this for this purchase. It would relieve the pressure on our cash flow somewhat while we wait on subdivision and rebuild (which is where the money is in the new deal). They seem keen so we will be in touch with solicitor and broker today to discuss. We are conscious of the pitfalls of this plan re investing with family. We have a good working relationship though and are both aware of the risks/benefits and take good legal advice. We would be splitting our profit in half but 50% of the pie is better than no pie at all.

I know that our figures seem low to be worried about cash flow but we are achieving this all on one average income while I'm at home with the kids. We also haven't held long enough to see any significant cash flow gains in the rentals.

Regards,

 

[josko]

Hi there Shann,

you might have another chance it seems with your val. Those are good grounds for the bank to revalue it. Good Luck.

Your Cashflow is THE most important thing about property investing. (In my Opinion.)

I wouldn't advise you to go any further if you are worried about cashflow.

I was merely doing the numbers on possible equity to draw on....not whether or not you could do it - re cashflow.

I have never done a JV with a fmaily member but would if I had anyone I could trust. Make sure you set out all of the rulles on paper, especially the part where one partner wants to withdraw from the arrangement.

There are more experienced investors here who will be able to give you advice along those lines.

Regards JO