Hi
We have all heard stories about people buying below market value. One theory is buy 20% below market value and get a loan based on market value to acheive 100% finance.
One of my clients recently purchased an investment property for $320,000 – an established unit. We applied for a 95% loan with one of the major banks who sent out their valuer. A few days later the bank rang me to say the value had come in at $380,000. The valuer said he had no option but to give this value as he was basing his valuation on comparable sales within the same building.
The end result was that the bank would not lend on the valuation, they would still only lend on the contract price. But they did agree to waive the LMI charges completely.
So this goes to show you can actually buy 15% below market value. And you can get 95% loans without mortgage insurance.
Terryw
[email protected]Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Thanks for the good example Terry. My thoughts on buying below MV in order to refinance your deposit out happens several months after settlement.
Example
Same property purchased for $320k (MV = $380k)Buyer settles on contracted date and puts down the required bank deposit say $32k/10% and also pays closing costs of say $20k, thus receiving a loan for $288k. Total investment $52k.
About 3 months later (depending on the banks stand down policy) the buyer can refinance the loan to take out their origanal deposit
At the same ratio of 90% finance the purchaser could then finance out $54k ($342k – $288k)
Therefor, although not initially no money down, shortly down the track the deal can be considered no money down.
What are your thought/experiences with this Terry?
Cheers, Leigh [
]Hi Leigh
It certainly would work as long as you could demonstrate serviceabilty. There is no fixed time period you must wait and you could do it just after settlement if you changed banks. If you wanted to stay with the same bank, then I suspect they would want you to wait a while (But have not had any clients do this before). You have to consider application fees and exit fees etc as well.
Terryw
[email protected]Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Hi there,
I guess there are many different ways of locating and negotiating IP’s below market value. My wife and I are total novices at IP’s but we do know how to listen. We recently managed to purchase significantly below market value by asking the vendors what THEY wanted. Purchase price didn’t come into the conversation until the very end of the discussion (2 days)
The area we had chosen was experiencing a bit of a boom. The RE’s were not interested in helping us as they could get their commissions without having to lift a finger. About 3 days on the market was average before being sold.
What to do?? – Knock on doors!!
End result – after 76 doors, we purchased 2 properties (that wern’t advertised for sale) 45-50%!! below current market value by providing the terms the vendors NEEDED. Something the agents wouldn’t consider in the current market.
We were happy & the vendors achieved what they thought was impossible. To top it all off, we also gained 2 great friends who we will keep in touch with for many years to come.
Why would anyone want to retire from realestate? The money is only a fringe benefit!!
All the best
Essykay
Sorry – forgot to tell you, the bank provided finance at 110% contract price, which allowed for the vendor needs and the property remains +ve.
LVR 55%.Essykay
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] With some of my clientele, some institutions will lend 100% of the value of the owner occupied/investment home, however mortgage insurance will apply. Generally, institutions will finance on contract price even if the contract price is lower than the valuation.
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] With some of my clientele, some institutions will lend 100% of the value of the owner occupied/investment home, however mortgage insurance will apply. Generally, institutions will finance on contract price even if the contract price is lower than the valuation.The topic ‘Buying Below Market Value’ is closed to new replies.
