Hey all,
Just a quick query, hope that someone has done it before or at least encountered this and can shed some light on a possible solution.
I am purchasing an IP, capital and equity is available from my existing IPs.
there is the possibility of securing the property at or before auction for approximately 10% below conservative market valuations. Lets say, property is worth 100k and I can buy it for 90k.
Given this, if i was to borrow the full purchase price and cover stamp duty and other costs out of my pocket, is there any way that the bank would accept the loan as a 90%LVR? or is the reality, as I have been told, that the bank views the value of the property as what it is purchased for(contract amount) and I could revalue 6 months down the track and possibly unlock equity?
What I would like to do: Get the contract for sale at the firesale price, get an independent valuation done before settlement, present valuation to bank and hopefully they would allow the 90% LVR on the full purchase price. Thus saving me a little on LMI and other costs. Is this possible? if so which bank?
Im sorry if this doesnt make sense, i know what Im trying to say…….
Any input or questions would be valuued.
Regards,
MickHi Mick
Nice in theory but in todays climate a lender will only lend against purchase price or valuation whichever is the lower.
Realistically you would have to wait 6 months before having a revalaution done on the property by the Banks valuer.
Richard Taylor | Australia's leading private lender
You said you have equity in existing property so you can either borrow against this lifting the LVR to 80% via a line of credit loan for 25,000 – 30,000 and use this as a deposit plus stamp duty.
Or secure some of your existing property with the new property and reduce the lvr over both properties to 80% more risky as you can lose all the property.Market value is the price a purchaser is willing to pay, so if you buy it for $90k, it is probably only worth $90k.
If you had cash (eg LOC from existing property), maybe you could pay $120,000 with a $30k rebate for work not completed – eg a promise of a pool to be constructed before settlement. You are not deceiving a bank as there is not bank involved at this stage.
Later on you go for finance.
Check this with your solicitor and see if they think it ok
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 all the comments, its been really helpful!
Terry, just to clarify so I understand it better…… In simple terms when you say
"maybe you could pay $120,000 with a $30k rebate for work not completed – eg a promise of a pool to be constructed before settlement. You are not deceiving a bank as there is not bank involved at this stage."
do you mean that when drawing up the contracts for sale that the sale price is bumped up and the addition of extra clauses in the contract for development of the property?
so for example, 90k is the asking price of a property, you offer 120k on the condition of major works being completed before settlement? if i am understanding this incorrectly please let me know….
would the process therefore be that the contract is drawn up as suggested above, settlement date comes and the major works arent completed, then this 'rebate' comes in to the value of 30k which means that the buyer only pays 90k for the property and the bank valuations and the sale amount in the contract reflect 120k?if this is the case, it makes sense to me but is this common practice? I have never heard of it before thats all and very interested to hear how one would go about it especially when dealing with real estate agents who sometimes tend to take a disliking to any more 'creative' sale clauses. any tips appreciated in advance or even a gentle shove in the right direction if I have it all wrong.
Cheers again,Mick
Thats it Mick. You will pay more stamp duty and if there is a lender involved which mortgages the property it may be considered fraud if not disclosed. If there is no lender, then?????? check with your lawyer.
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
Terryw wrote:Thats it Mick. You will pay more stamp duty and if there is a lender involved which mortgages the property it may be considered fraud if not disclosed. If there is no lender, then?????? check with your lawyer.If :
*the value the lender is basing their approval on is conditional on certain contractual improvements to the property occuring prior to settlement; and
*those conditions are not met prior to settlmentwhy would a lender proceed to settle?
Y
The lender is not basing their approval on the improvements. The property is only mortgaged after settlement. The valuer will do their own research and will not see the contract of sale. It will only work if the property is purchased cheap and under market value.
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
I'm not so keen on that clause. If you ever got questioned by Stamp Duties or the ATO would you be able to swear a Stat Dec to the effect that you really expected the vendor to carry out $30k worth of improvements?
I also wonder whether the banks are becoming more aware of these kind of clauses and are starting to question them. One of the problems with this clause is that normally failure to carry out promised works would mean a reduced purchase price, not a rebate after settlement.
I think that it is inevitable that both banks and Govt bodies will start to question these types of clauses and if they do and you write in a stat dec or affidavit that you really believed the improvements were going to be done, you have committed fraud.
What about getting a 6 month settlement and getting in just prior to settlement and doing some renos?
Cheers
K
Thanks K, fair enough it is done with the purpose of trying to borrow more. I though because there may be a period of a month or so between settlement and getting a loan, then it would be enough distance.
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
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