Buy below MV and release equity?

Hello, this idea seems to be a good way to accumulate property without having to save a deposit everytime.
I am just wondering if someone can explain to me how this concept works,

let's say you finance through CBA, and they value the property at $300k, sellers are desperate and you get it for $ 260k, you possibly do abit of a reno on it, you think the house is worth $320k now,
4-5 months after settlement you want to release some equity for another IP deposit. would you then get CBA to revalue for equity release, or another bank? I have heard that the same bank may consider the $260k as the new market value since it is what you paid. (of course LVR would need to be considered as well)

any help would be appreciated

 

Unfortunately these days buying under "market value" is near impossible as 99 times out of 100 the banks will value the property at purchase price. Is under market value an actual thing? Isn't market value just the value the market is willing to pay for it? In this situation market value would be $260k.

 

Some people believe you can buy below market value but thats rubbish.
When a house is on the market and sells then that's the market value.
But you can do the Reno on the property and have it assessed to see if it's worth more, this will speed up the process and build equity if done correctly.

 

thats what i thought, and id think they would especially do this if they were the bank that loaned the money, but couldnt valuations be done without knowing the purchase price? , lets say in my example at the time the sellers had the property on the market, there were quite a few similar houses in the neighbourhood selling for the 300k+ mark but as they were desperate they just took the first offer that came for 260k

 

Yeah the valuation could be done beforehand and come back higher but as soon as you purchase the property for $260k and then try and pull out the equity available they will value the property for $260k because the property has been sold so recently. That's my understanding anyway, I haven't heard of buying under market value in the current lending.

 

@Taku Ekanayake would be the expert of this strategy

 

I think it's more a matter of buying before the market rises.

 

One of the first things that a valuer does as part of their research is the look at the sales history of the property. If just bought it for $260k, they'll see that. Unless you can give them a very, very compelling argument why the value has increased, they're going to simply go with the purchase price.

In my experience it's very rare that people truly purchase below market value. The value of a property has a range. Some buy at the top, some buy at the bottom of that range.

 

That's true if nothing interferes with the process. A true market value can take time to find a buyer willing to pay fair market price. In a normal market transaction the seller should not be under undue pressure to sell and the buyer should not be under undue pressure to buy.

A bank forcing an owner to sell within an artificial time frame cuts short the process and interferes with the way a normal market operates. It is possible, although rare, to purchase below fair market value when a seller is forced by a bank to sell within an artificially imposed deadline. The seller is forced to accept a low offer because there is not enough time to find a buyer willing to pay fair market value.

 

I agree with this

It is possible to buy below market value it's just so hard to find.

 

Personally, I have found genuine BMV very difficult to source. In 10 years I have managed to pick up 2 only and they were a lot of work to find. The first one I wondered why the seller let it go so low. I found out later there was a family dispute over an inheritance and the seller sold it cheap to stick it to his sister and make sure she would not get as much as she should. The other was under a Sale or Seizure Order from a bank. The place had sold at a higher price but the buyer pulled out the day before settlement leaving the seller a week to sell before the Sale or Seizure Order expired and the bank took possession of the property. The reason the properties are not exactly advertised as 'distressed seller will take any offer'. It's just knowing the market and what properties should be selling for then jumping on anything that doesn't quite fit. This only happens rarely in my experience.

 

In general I agree. But it's been done before. I know of a person who made an offer on a commercial building for 10m. He was able to get a valuation for 12 m which essential meant he was able to buy zero deposit. After jacking up some rents and fully tenanting and combined with a few years of property boom at that time period he eventually sold out at 30m generating a very decent return from essentially nothing down.

No where near as easy these days but we should all always be out there looking for opportunities. Having a friendly banker also helps ...