Help! About to purchase an investment property

Hi CallumA,
“I am not about to purchase an older home….”

I presume that was a typo, and should have read “I am now about to purchase an older home….” ;)

Any answer to your question re “How much would the value drop?” would require a lot more knowledge about the initial block – size, value, location, size after subdivision, etc. Depending on comparables surrounding it, it could be that any value change might be minimal – or not.

However, assuming your borrowings from the lender are secured by that house/land, you would be duty-bound to notify the lender – indeed, you might need their permission to go ahead with the split. So, yes, it is likely to be an issue of some kind.

Then again, since you already own one IP, if you are using the same lender, it could be that they are aware of you and your history, and they may well be more lenient because of this. Or any equity in your first IP might be utilised as extra security for the extra risk to them as you subdivide. So, I am sure there would be a path through this.

Maybe our MB’s on board can come up with examples of similar cases that they have been involved with. I am sure it would be a fairly common event.

Benny

Hi callum,

‘Normally’ when you split a block, the front house does drop but the new block is usually worth a good amount more than the drop in hte first property.

The two properties will be both securing the existing loan so unlikely to need LMI. That said, once the new titles come through it’s a good idea to create new loans for the properties so they’re both securing one loan each. You still should not need to pay LMI if this is structured correctly.

Only real way to tell pre sub division is to look for comparable sales of similar properties and attempt to guesstimate the end value and then work out the LVR.

This is not an exact science and is where things can go realy well if you get it right and realy bad if you get wrong and everything in between.

Knowing the local market is what will dictate the success of your project and timing a market upswing is the sweet spot for development, if not you may have to hold for an extended period which isn’t necessarily a bad thing if holding costs are minimal or better still non existent or even better cash flow positive :)

• This reply was modified 8 years ago by  Colin Rice.