Please excuse my ignorance. In a lot of books they say to try and buy houses for a 15-20% discount and put as minimal deposit down as required. My query is this:-
House: – $100,000
Offer accepted: – $85,000
Deposit 5% – $4250LVR = 95%
In this example it means you would be loaning 95% of the funds. Traditionally banks like to have some sought of buffer eg. LVR 80%. How does one overcome this problem. Does the bank value the house on what you have paid or do they get there own valuer to do an independant valuation? At the end of the day the property is only worth as much as what the purchser is willing to pay eg.$85,000.
If the bank does do an independent valuation I can see how the LVR is maintined as you have the $15000 equity as you have purchased at a 15% discount and you have $4250 deposit down. Your LVR is then close to 80%.
Hi Insider,
You raise a couple of interesting points here.
First, most LVRs are based on the bank valuation, which in my experience is generally the lower of independent valuation or cost.
This being the case, even if you negotiate a discount, the LVR will still be based on cost. The few times this has not been the case is outlined in:
https://www.propertyinvesting.com/strategies/creativefinancing
The second point I’d like to make is that it is possible to get 95%+ financing on property, but this will involve mortgage insurance and also, in some cases, other security given the loan is so high.
Remember too that the more you borrow the higher the interest cost. High interest (caused by over-gearing) will make it next to impossible to earn a +ve cashflow on deals that only marginally meet the 11 sec. solution.
Thanks for your post and I hope this has cleared things up.
Regards,
Steve McKnight
**********
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**********Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
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