Is it ever bad to get a loan based on a high valuation from the bank?

Example. You know from comparables and recent sales that your property which you wish to extract equity from from next IP is worth $500k and would only fetch that in the market but the bank valuation from your broker comes back at $580k and you draw equity based on that valuation. Any issues here?

 

No issues unless you cant pay it back. Can happen in a hot market.

 

Well - if you ever want to/need to sell that wouldn't be ideal. Don't want to be backed into a corner with a property effectively underwater in terms of val, so tread carefully.

 

It's an issue if you're all "yippee - awesome val!" and naively think it's for real.

You need to think of it as a Lawyer 90% no LMI deal - fully aware your LVR is 90%, but you'll take the no LMI with a smile.

As Corey says - have an understanding of the actual value, and if it's a property you'll potentially sell, be aware of your market (rising, flat or falling ) and likely sale price. You want a buffer in there.

 

Strategy wise its great as it can be used for debt management - e.g. it may mean more funds in your control than otherwise if you can release it.

Reality wise, it doesn't actually change the market value of your property. There's some that may claim that this val means they purchased 'below market value'. I wouldn't buy into this. Valuations, particularly desktop valuations, in some cases are way of the mark and don't accurately reflect true selling price.

 

The obvious issue is that you're potentially borrowing more than the true value of your property (depending on the LVR you're going up to). This has ramifications if you need to sell up.

The obvious benefit is that it gives you more equity to play with - which could potentially be leveraged into other investments.

There's risks - there could also be reward.

As Corey said - tread carefully.

Cheers

Jamie

 

The downside, as other have pointed out is when you come to sell and the loan exceeds the realisable value of the property, you will need to tip in the funds to get the bank to release the title documents - they have one over you, you won't be able to settle.