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Pre-renovation Serviceability

Discussion in 'Property Finance' started by opal3259, 3rd Dec, 2015.

  1. opal3259

    opal3259 Well-Known Member

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    Hi Folks,

    Looking at a couple of properties at the moment that require extensive renovations.
    My question is around rental income serviceability.

    If an investment property requires renovation before it can be rented out - will the bank take this into account for their assessment?

    For example, you've got a property worth 800k.
    In it's current state it can't be rented out at all.

    With 100k worth of renovations, it can achieve $550-600 per week in rent.
    How do banks assess this?

    Do they simply evaluate the deal 'as is' - e.g. with no rental income.
    Or do they look at what the rental income would be post renovation?
     
  2. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    as is
     
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  3. Mick C

    Mick C Well-Known Member

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    Depends if you need the bank to do a val...ie are you taking out equity?


    If your not touching this security, bank will be ok with a letter from agent ( Most banks anyway)
     
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  4. opal3259

    opal3259 Well-Known Member

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    Hi Michael,

    Won't be taking out equity for the property that is about to be purchased.

    Would be easy to get a letter from the agent post renovation - but pre-renovation would be the issue.

    With the bank valuations, is there a difference depending on the price of the property you are purchasing?

    I've heard of people getting approval without needing a full valuation, but every transaction I've been involved in has required one. Having said that, I've been purchasing everything at price points above one million.

    In other words, if you buy something at 600k - is it less likely to need a full valuation vs something that's 1.2 million?
     
  5. opal3259

    opal3259 Well-Known Member

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    And to clarify the last post - I'd be buying at either 80 to 85% LVR.
     
  6. Marty McDonald

    Marty McDonald Mortgage broker

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    I would be careful committing to an unconditional contract without first getting formal loan approval. Lenders will decline if the property is not inhabitable as is.
     
  7. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    If you're going in at 80% you can go off the CoS or an AVM with some lenders. Over $1M it's more problematic.

    'Can't be rented out' is different than 'uninhabitable' in the banks eyes. Filthy and dated is still habitable, so depends why it needs reno. Does it have a kitchen and bathroom?
     
  8. opal3259

    opal3259 Well-Known Member

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    Hi Jess,

    One of them is uninhabitable (no bathroom/kitchen - whole house needs to be re-stumped, etc).
    Major renovation required.

    I guess that's why I was asking about the valuations at different price points. Was hoping that at 80% LVR and under one million I could get it to just sail through the system - without an onsite valuation being done.

    The second property is liveable - has a kitchen and bathroom, but needs a lot of cosmetic work.
     
  9. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    It's prob less an issue of onsite valuation as what the RE will say in the rental appraisal.
    If you can combine no val and a reasonable rental estimate it might come through fine for the second property particularly.

    First property is a different kettle of fish.
     
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  10. Mick C

    Mick C Well-Known Member

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    If it's for a new purchase,

    1. Yes bank will take rental letter from agent....very easy to get

    2.i be VERY Carefully before going uncon...make sure your broker knows the property and your situation ...some banks like CBA and ANZ etc... dont need to do val as long as certain conditions are met, generally under $1m and 80% lVR with some exception going to 85-90% ( >80% is a lot hardier) etc...

    3. if a full val is done...you may get into trouble as the bank either won't finance it OR will finance at land value.
     
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  11. opal3259

    opal3259 Well-Known Member

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    Thanks Jess - noted.

    Reading between the lines.... 'find something under a million that won't raise any red flags with a nice rental appraisal :)'
     
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  12. opal3259

    opal3259 Well-Known Member

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    Thanks Michael... I'll tread with caution.
    Any idea what the policy is at Westpac?
     
  13. Mick C

    Mick C Well-Known Member

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    Westpac policy is No policy ...meaning it's up to the assessor ( it's stupid)

    They may do no val 30% of the time ..but i find most do ask for it.
     
  14. opal3259

    opal3259 Well-Known Member

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    Right - so it's a bit of a crap shot.
    Amazing how an individual lenders policy can influence the type of property you buy :)
     
  15. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    If you're with Westpac, you'd be mad to run that gauntlet - much better off using a lender that you know have consistent policy.
     
  16. opal3259

    opal3259 Well-Known Member

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    Yup... Based on everything I've seen so far - the current deal I'm putting through may be last on I do with Westpac.

    Will look to CBA, ANZ or NAB for the next deal.
    I've heard ANZ will assess self employed using one years worth of financials - which will help as well.
     
  17. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    Yep - CBA will too.
     
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