Hi All,
Just wondering if anyone could help me with understanding an Equity issue I have at the moment, I recently purchased an IP for $350,000 and it was a Mortgagee sale. In the contract it has a valuation valid until the 26th May this year for $520,000. I borrowed the whole $350,000 + Stamp duty. Would this mean that I would automatically have $140,000 (approx) in equity (assuming that another valuation of the property came back at $520,000?
I spoke to the bank and they said that becuase I borrowed the whole value of the property I don't have any equity. Can anyone please clarify?
Regards,
Equity = Property value – borrowings
Property value is what the bank's valuer has assessed the property to be worth.
What sort of valuation has a 'use by date'? Valuations are done on a specific day based on current market evidence, it is not valid for a period of time.
Hence if you bought for $350+ sd and the bank has valued it for this amount, then you have zero equity.
shivasko wrote:Just wondering if anyone could help me with understanding an Equity issue I have at the moment, I recently purchased an IP for $350,000 and it was a Mortgagee sale. In the contract it has a valuation valid until the 26th May this year for $520,000.I have seen a lot of contracts in my time but I've never seen one with a valuation in it. However, was this valuation done by the same valuer as hired by your lender? Most valuers will only value at their valuation or the contract price, whichever is the LOWER. Additionally, valuations can be different from the same valuer depending on the reason for the valuation.
shivasko wrote:Would this mean that I would automatically have $140,000 (approx) in equity (assuming that another valuation of the property came back at $520,000?Yes, but most lenders will not reval within 6 months of a purchase.
shivasko wrote:I spoke to the bank and they said that becuase I borrowed the whole value of the property I don't have any equity. Can anyone please clarify?Their valuer probably did the val at the contract price.
a value is only what a person is prepared to pay. You have paid $x for it, so it must be worth $x. If you do it up, or claim to have, or wait a while you may be able to get a higher valuation.
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
Never seen "proper valuation" being revealed in the contract….. could be realestate agent valuation???
The days of having to wait 6 months for a property to be revalued for many lenders have been and gone and you can revalue 1 day after settlement if you believe there is a reason why the property will have increased in value.
In saying that i havent seen to many valuations come in on an increased valuation in such a short period of time.
If you can support the reasoning with other comparative sales then all should be sweet.
Richard Taylor | Australia's leading private lender
Scott No Mates wrote:Equity = Property value – borrowingsProperty value is what the bank's valuer has assessed the property to be worth.
What sort of valuation has a 'use by date'? Valuations are done on a specific day based on current market evidence, it is not valid for a period of time.
Hence if you bought for $350+ sd and the bank has valued it for this amount, then you have zero equity.
Hegneys in perth do valuations which are good for 3 months.
Possibly they do but unlikely a lender will accept a valuation which is 90 days old.
Richard Taylor | Australia's leading private lender
Hi All,
thanks for your feedback, the document where the property valuation is written is in the "Land Information Certificate" and it states the:
– Capital Improved Value
– Site Value
– Net Annual ValueSo yeah was going to use that as an estimate to how much equity I might have on the property and then organise a valuation to confirm it so I can buy another IP.
Regards,
Shivasko
Shiv, that sounds like a valuation for statutory/ratings purposes, not one prepared for market value.
Ohh i see,
so whats the difference?
Is it likely/common that a valuation for statutory/ratings purposes would be much higher than one prepared for market value?Usually they are very conservative! The Govt uses the value for calculating land tax.
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
Banks will typically go off the historic purchase price, so if you paid $350k for it, in their eyes that's what it is worth, and they will say you have no equity.
However, your true equity in the property is it's current valuation minus what you owe on it. For starters, you can get an agent in the area to give you an appraisal (usually free) which will give you some idea as to what it coudl be worth.
If they give you a number considerably higher than you paid for it, you can get the bank to revalue the property and potentially increase your credit limit (subject to approval criteria).
OK, thanks
I'll get the appraisal done then re-value it..
Thanks to everyone for their advice aswell
Quick question for Fin Spec.
Can you tell us what investment of $40,000 4 years ago you put clients into and is now worth $250K.
Just curious.
Richard Taylor | Australia's leading private lender
Sure Richard,
We had a private offer from one of our insto banks that we work with to pick up units in an undervalued property trust which they funded at 60% – the return was actually a little higher than that and took about 3.5 yrs. It's come back a little since those guys gave us the testimonial, however we managed to pull most of our clients out. It was the gearing that did it more so than the return. One of the best investments we've ever recommended. When I retire, I'm sure I'll look back and remember it as one of my top 10.
That being said, we picked up some undervalued (distressed) commerical for some clients who just walked out of the office about 10 mins ago… they will exit after probably two years with ~$520k from $200k down in Dec last year.
We've got private placement going on the moment that is 35% below the unit price (NTA recently revalued by the bank) – but these are for private consumption and can't be advertised (sorry, no enquiries please).
If only we could do that every time – we anticipated good returns, but sometimes they just blow you away!
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