Deposit Question

Hi All,

I'm trying to work my head around this following situtation. imput and suggestions please

I'm going to be purchasing for $400k, current "bank" valuation is $500k.
I have $50k for the deposit and closing costs, as the purchase is @ 80% LVR with no deposit i was hoping i could do this.

Deposit $25k
Mortgage (inc closing) $375k
Based on valuation of $500k LVR is 75%

or

No Deposit
Mortgage (excl closing) $400k
Based on valuation above LVR 80%
pay closing out of 50k and remaining into offset account.

Further what would be the best way to structure, ie LOC, Splits, I/O or P&I etc
As we will have pretty much instant equity, we will be looking to purchase another property after 6 months.

This is great. Has the bank already valued the property? Because often lenders will not value the property above the purchase price as they want to limit their risk.
If you want to buy a second investment property then why not go the route of a 400k loan so you have have money in your offset account ready to go for the next investment? This will save you having to reapply for an equity loan.

Looks like you have put yourself in a good position for investing. The ability to get a 100% loan is extremely rare so you are one of the lucky few...well done.

Ryan McLean
http://CashFlowInvestor.com.au
Positive Cash Flow Properties Are Just A Click Away

Thanks Ryan,

Didn't think it would technically be a 100% loan based on the valuation, and yes that is a bank valuation.

So if i go through and do the $400k would that mean the $50k i have as the current deposit just sits in the offset acct till we are ready??

Sure the "Bank" valuation maybe $500k (this maybe from a 3rd party registered valuer) however often the Banks will only base their LVR on the "Contract Price OR Valuation  whichever  is the lessor value. 

Either way you appear to be buying at a bargain price

So maybe best to check with your lender to confirm which 'value' they will use to ensure that LVR remains > 80% to avoid Mortgage Insurance etc

If the lender uses the Contract Price of $400k you will need 20% deposit PLUS costs i.e. $80k + costs (S/duty etc)

Just be careful I have never seen a property purchase where the bank values more than the property purchase price. They will argue that is the price a willing buyer and seller are prepared to exchange the property for hence the valuation.

Question is it arm's length transaction?

Spiro Kolokithas - What If We Finance Tel: 03 8804 1354
www.melbournemortgage.com.au
see the possibilities...

rtsapstead,

Has the bank valuation been done by YOUR bank in the last couple of weeks, or is it one conducted by the existing vendor's bank? As a general rule, the bank will not value a property for you that you dont own (unless you can present a signed contract of sale), so I will assume it is the existing vendor's bank that has valued the property.

It so, it would be advisable to find out when the valuation was conducted, and even obtain a copy (depending on the bank, some will use their own internal valuers and therefore will not provide a copy of the valuation).

Just wanting to make sure you have all the numbers correct here - If you can obtain a recent valuation, or even have a new one completed by a registered and well known valuer that says the property is worth $500k, then go for it at $400k!

Regards,
YI

"Knowledge is Power"

In 25 years of being a property investor I have NEVER heard of a bank coming in higher than the purchase price and then borrowing out at the Valuation price not the purchase price...............I will keep an eye on your posting rtsaptead in the future to see if it all goes through for you ---- good luck.

hence I was a little worried about the "current" bank valuation.

I fear it may be the agent or the vendor advising the bank's "most recent" valuation which may not be recent at all...

Regards,
YI

"Knowledge is Power"

Hi YI and Danny,

just spoke to the r/e agent, it is the current owners' bank that has done the valuation and they have used and external valuer, was valued 9 days ago.  I'm quiet aware that the banks will use the lower of the purchase/valuation (well my bank will anyway) which is why the question was raised. I couldn't get my head around how I could proceed, cause as far as i'm concerned (bit sceptical on the LVR front) to the bank it would be
Value: $400k
Deposit: $25-50k
Loan: $350-375k

Still thinking it is a good deal though if we wait 6 months and get my bank to revalue should be able to go forward with the next property.

That sounds quite good then in terms of what you are able to purchase the property for - The only problem will be finance, but I will address that below. WIth regards to the valuation:

Who is the valuer? Can the vendor provide you with a copy of the report? If you work out who the valuer is, you can then ask your bank if the same valuer is on their panel and give the valuation to them. This will help them with their valuation with you revalue the property after purchase (assuming you still proceed, and are successful). You may even be able to engage the same valuer to complete an updated report in say 12 months time (they will still have all the research on file) for a reduced price.

Also remember that the bank will probably want to wait 12 months before revaluaing, but if you push them hard enough they will probably do 6 :)

With regards to finance you might need to see how high you can go based on the purchase price of $400k in terms of what LVR you can get. By my estimate you are probably $60k away from total up front costs required assuming an 80% mortgage, so see how far you can close this gap.

- Higher LVR?
- Existing equity?
- Borrow elsewhere?
- Joint Venture with YoungInvestor from propertyinvesting.com?

All of the above suggestions are based on the fact that you have already done all your due diligence and that you think it is a worthwhile purchase of course :)

Good luck!

Regards,
YI

"Knowledge is Power"

Sorry to come in at the end of the post comes of having a day at the beach but why would a Vendor sell a property $100K less than his own Bank have just valued. 

Even if his loans were cross collateralised it seems strange they would value the security when it is being sold.

Are you sure it is not just a case of Selling agents spin. 

Richard Taylor - richard@tayloredfinancialsolutions.com.au Tel: 07 3720 1888
Residential Mortgage Broker providing structured home loan advice for investors and owner occupiers all over Australia.
Thinking of buying your next investment property using a SMSF. Email me for a copy of my SMSF EBook.

I would suggest get a 'proof' of bank valuation

In the good old days I had a few client's who had their valuations come in over purchase price. One I queried the valuer and he said an identical apartment across the hall had sold for 20% more than this one so he had to take it into consideration. My client ended up getting a 95% Loan with no LMI payable. it is rare tho

Terryw
Finance Broker
Solicitor

Yeh but Terry you are talking the good old days of around Oct 2009 that was donkeys days ago.

Richard Taylor - richard@tayloredfinancialsolutions.com.au Tel: 07 3720 1888
Residential Mortgage Broker providing structured home loan advice for investors and owner occupiers all over Australia.
Thinking of buying your next investment property using a SMSF. Email me for a copy of my SMSF EBook.

Hi All,

wow, been a while since i've been on the forum, been over in the US and Canada.

just thought i'd update you all on how this one eventually went down.

managed to squeeze the vendor down to $395,000 purchase, bank did value at sale price, which is fine.
Loan organised @85% including closing costs, the property is currently rented out @ $400 p/w.

Richard, the sales prices was due to the vendor having some very personal reasons......

Got my bank to revalue in October 2010 for a valuation of $540k. I had done a little reno on it, just the bathroom. total outlay of $4,500.
Purchased 2 more since this one, as well as the one's in the US and Canada. I'm permantly relocating to Canada at the end of this year so the Canadian one is going to be PPOR. Looking for 2-3 more deals to do before the end of the year.....

Worth case, take the loan based on $400K then 'refinance' in under 3 months [as the valuations usially only last 3 months] (with the bank that has valued it at $500K) and use the additional equity to re-invest with another property.
Make sure you get a copy of the $500K valuation....kill somebody if you have to :)

Colin Newland
m28_investments@hotmail.com