Good buying opportunities exist in the market right now, and you wouldn’t be the first owner to consider delving into the equity of your home to purchase an investment property.
Others may be thinking about using that equity, or even increasing their loan, to capitalise on the Federal Government’s promise of a $25,000 grant for any renovation valued at more than $150,000.
Whether you’re a potential investor or owner considering renovating, you must get your sums right. A common error in a calculation is to believe your lender will translate an agent’s market valuation into a loan increase.
Unfortunately, a significant difference can exist between the figure your real estate agent might cite and a bank assessor’s valuation. Neither way is ‘wrong’. They are just different. It helps to understand that banks and agents have very different ways of valuing property.
Banks take a hard-nosed approach. They assess everything through the lens of risk around repayment. Where a buyer might see the potential, an assessor sees a problem that needs money to be fixed.
An agent’s valuation will often be based on recent sales results, the mood of the market and believing they can tug at buyer emotions during a sales campaign. As agents, we sell the dream of the property and work hard to maximise the market price. An assessor considers none of this and concludes only the likely sale price at a specific moment in time.
So those wanting to refinance to buy an investment property or undertake a large-scale renovation can be stymied because a lender will only release funds using a loan-to-value ratio.
But all is not lost. There are ways you can upgrade your property in advance to maximise a potential bank valuation. Here are some ideas and guidelines to help you think through this challenge.
- Always be present when the assessor comes through your home.
- If you’re having renovations done, then ask a bank to value your property immediately after the work is completed. That’s because the value added by an upgrade diminishes over time. Moving swiftly will maximise your equity position.
- Prepare your home for an assessor as you would a prospective buyer. Untidy, rundown properties perform poorly in both scenarios. So, repair problems and be willing to repaint or undertake small enhancements that will impress.
- If improvements are half-done, get them finished. An assessor will mark down the value of your home based on their cost assumptions to get everything fixed up.
- Create space in your home by taking out furniture and giving the impression of open-plan living.
- Update the appliances, and point out their quality to the assessor.
- Upgrading a kitchen or bathroom is an excellent strategy to attract top-dollar from buyers. The assessor will be positively influenced, too.
- If you own an apartment, make sure the assessor is aware you have access – even exclusive access – to a parking, storeroom, a garden or BBQ area.