Is it true of low doc lenders that they will lend only up to 50% of the purchase price or valuation, which ever is the lower, of a residential property in a non major rural town of say population under 15000?
Or some wont lend at all- period, with this style of loan.
Consider this, it is an actual example of a property I have under consideration.
List price 89,500 3 bed, + dining, needs kitchen, bathroom, paint inside and out, carpet and tiles, built ins (in main) and aircon, carport and yardwork.
Cost to renovate, round 20000 aprox.
My offer (thinks) 60,000 on 5% dep. with a 90 day settlement to do the work to bring it up to rentable standard.
Rent after completion, round $140,000. Similar to others in the area.
After reno and or the tenant moving in my assumption is that this property would be worth 130,000 – 160,000 like the others nearby.
Refering back to my opening question therefore… is it correct that upon valuation of the completed project I could only raise 30,000?
Question 2 Should I decide to do the project with my own money entirely… meaning it would be totally unencumbered on completion, is it fair to assume that later down the track a lender will view the value as only 50% of its market value because of the location.
Plus I assume anyone wishing to buy it later would be in the same situation trying to get finance.
I’d be particularly interested in hearing from anyone who has had some experience with a similar property.
Long post, thanks for reading.
Hi Cam,
It depends on the area, if you give the postcode to a mortgage broker, they should be able to give you the info you are after.
Regards
AlistairHi Cam
I’m fairly concerned with some assumptions you have made in your ‘due diligence’ (!)
$89,000 List price
$60,000 Offer (1)
$20,000 Renovation (2)
$140 pw (?) Rent Similar to others in the area.
$130,000 – 160,000 value after renovation (3)1) You are assuming that 33% off is a fair offer and likely to be accepted. If this is so, it is likely that the other similar properties you describe would also be in the same inflated price condition.
2) On an average 10-14sq house you should be able to make the renovations you mention for under $20k providing you put in most of the labour. If you are going to get tradies to do some or all of the work, get some quotes before you go ahead with the purchase (expect $7-10k for a full paintjob alone depending how remote the property).
3) If similar houses in this area are advertised at $130-160k but vendors are willing to accept 33% off, why would your house be valued at 50% more than similar properties after renovations bring it into line with what they offer?
On the other hand, if you can rent it for $140,000[blink], I say go for it!
Cheers, F.[cowboy]
There are many different low doc lenders out there. Some will lend for any suburb in Australia – as long as it has a postcode. Others, mainly the mortgage insured ones, can only lend for certain postcodes.
Terryw
Discover Home Loans
Mortgage Broker
North Sydney
Click below to email meTerryw | 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
agree with others here. seems like your expectations are a little unrealistic. on what basis have you come up with the $60000 offer? have other reno-type pptys sold for this? and as foundation so rightly pointed out if you can grad such a reduction on the value of the ppty why couldn’t others post-reno. getting back to your original question, with my experience of low-doc lenders, they are significantly more selective about how and where the funds are used. shop around and you might be able to find a suitable deal.
Thank you for your input.
The property in question is in really bad shape, not structurally but cosmetically.
The previous owner managed the property himself not so successfully it would seem.
Although there is no guarantee that my offer of 60,000 would be accepted, taking repairs into consideration its what I recon I’d need to buy the property for in order to come out on top.
The local agent said he would not think of managing the property in its current state however with the items noted above could get round the $140 a week mark for it.
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