Thoughts on valuations/Builders reports before auction/Bank issues

[kiwibean]

Hi there,

Thought I would share something I have experienced recently when I was looking at more funding for another IP. I am looking to buy at an auction and wanted to know experienced investors what their thoughts around it was.

I am looking a two properties which are very similar except one requires a bit of tiding up compared to the other, paint the outside, re carpert, replace a couple of internal walls with gib and just a general clean up etc. Maybe about 20-30k work all up difference.

The bank in question said they would lend on the one property but not the other until I got a Builders report and RV on that second property. They are on the same street. There is not too much difference and they said they went by what the photos look like online and take a gut feel. I think this sucks a bit as they can see by now I have done this exact same thing on many properties now.

This is what they said "Yes we would be happy to consider this however we need to know the condition of the property and what needs to be done etc. Hence that we do need a builders report/valuation in some instance. If the property looks ok online we will likely not require a valuation or builders report"

I do not want to get a Builders report and RV as this costs money and not really wanting to put too much money into a property if I am not guaranteed the cash from the bank to bid on the auction.

Bit of a pain as I want to try to get this property for well under GV and can see the cost to do it it as have experience.

Has anyone had this happen before to them.

Thanks

[artemis]

What I have done several times in the past is get finance approved on a property already owned which has sufficient equity to support the additional borrowing. All my borrowing is against one property now. Then all the bank wants to see is proof of purchase. Makes life very much simpler when purchasing. Obviously not everyone can do this, but with rises in values in recent years it may be worth a look.

[kiwibean]

So to get this straight you have a property already owned and basically look to refinance that property which gives you enough cash to buy the new property?

Thanks, just a bit confused.

[Damap]

Given the value of homes and the upside if you are a real estate investor you shouldn't be even batting an eyelid at reports and RV's.
Welcome to real estate. When I was buying a lot of homes I kept my building inspector and valuer in new cars and overseas holidays for about 3 years!

[Courham]

Hi Kiwibean, yes put mortgage on something you already own (if you'e enough equity to do that)

As for a builders report, I always get one for piece of mind, only few hundred dollars well worth the investment IMO.

Craig

[artemis]

So to get this straight you have a property already owned and basically look to refinance that property which gives you enough cash to buy the new property? Thanks, just a bit confused.

Correct. The new property is not security for the borrowing so the bank is not interested in condition, valuation, insurance, builder's reports, LIMs, piles, wiring etc etc - almost no hoops to jump through. I have never been asked to give security over the new property as there has been plenty of equity in the existing security.

Important to document carefully what the new borrowing is for.

Very helpful when we bought a place with an extensive addition that was unfinished so no CCC. Vendors ran out of money. The bank would not have liked that place as sole security, and if they did lend there would have been conditions.

[DaveW]

Have you asked another bank?

Is there something odd about the property which the bank are concerned with? construction material?

Its true its a small cost and part of the business.

Maybe banks are also requiring other potential buyers for the same thing... it might be a good buy if everyone thinks like you and not bother with this property because the finance is too hard.

[kiwibean]

There is nothing the bank should be concerned about. I just find it strange that KB said they make judgement by looking at the images online. This property is no where near as bad as some of the others I have bought before.

[PTILoveYou]

KB is tough to borrow with...

Why not choose another bank to borrow from, and later refinance back to KB?

I usually use a broker for my loans, and I have never needed to do a building inspection as part of the finance. The only instance where I needed a RV was for my own home where it was a brand new house with no CV at the time.

[DaveW]

There is nothing the bank should be concerned about. I just find it strange that KB said they make judgement by looking at the images online. This property is no where near as bad as some of the others I have bought before.

Banks have their own ideas, they minimise risks based on past dealings of financing without due diligence.

But if you are a builder and confident that the building is sound then there is nothing stopping you buying the property at your price and then go get the finance, if you are that confident and worried you might be wasting the cost of a builders report.

[kiwibean]

Thanks for the comments. I was also reading the latest IP Mag and noticed that not really anyone that has many IPs deal with KB.