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Equity calculation before purchase

Discussion in 'General Property Chat' started by New2prop, 7th Sep, 2016.

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  1. New2prop

    New2prop Well-Known Member

    Joined:
    26th Jul, 2016
    Posts:
    70
    Location:
    Sydney
    Many smart PC'ers will say that "buy below market value". While market value is debatable because no two houses sitting next to each other with same features like 3/1/2 don't sell for the same price. So all the bank estimation tools, price finder, Onthehouse everyone of them have differing estimates (some are broad ranges of about 75k!)

    So when you do decide to buy a property:
    1. How do you determine market value?
    2. How do you know what amount equity you will get after the purchase?
    3. How soon after the purchase do you pull out the equity?
     
  2. Leo2413

    Leo2413 Well-Known Member Premium Member

    Joined:
    18th Jun, 2015
    Posts:
    5,713
    Location:
    Sydney
    "New2prop, post: 274244, member: 6364"]So when you do decide to buy a property:

    1. How do you determine market value? Comparables. They don't have to be identical to get a good enough picture of what your place is worth on the market as is. But there is also 'business value' to work out which most don't. That means it could be worth $5 but if you do X then it could be worth $9. So while the market is willing to pay $5 now, you might see opportunity and be willing to pay $5.50, spend $1 and sell for $9 in 12 months for example.
    2. How do you know what amount equity you will get after the purchase? Usually none unless you really have bought so much below other comparables in the area. Not likely but it can happen.
    3. How soon after the purchase do you pull out the equity? Depends on your own plans/goals. Many ppl in the growth phase want to pull out equity asap to reinvest.
     
    Last edited: 7th Sep, 2016
  3. joel

    joel Well-Known Member

    Joined:
    23rd Jun, 2015
    Posts:
    783
    Location:
    Adelaide
    Waiting 6 months will give you the best chance of a favourable valuation because it's considered long enough that your purchase price is no longer relevant. Your broker can order a valuation for free which will give you an indication of what it's worth. Failing that, do your own research and make sure you have enough cash to cover any shortfall!