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Why Do You Need A Pre-Mortgage Valuation For An Investment Property! - September 2021

By Guest Blogger, James Clarke, 

Vals NSW

Are you considering buying a property as an investment? Whether the intention is to earn a return on the investment either through rental income, or the future resale of the property or maybe both. This article will break down all factors involved that need to be considered first before jumping headfirst into the property market.


Knowing the type of valuation and process that would need to be conducted is beneficial for your financial status. Seeking a property valuation for an investment property would be the most beneficial in your decision making and financials.


Our independent senior valuers are qualified and highly skilled in all specialised residential / commercial or industrial property types and are local to the area, each valuation completed by our valuers have comprehensive data analysis and research included in the reports, also taking into account factors like location, land value and environmental factors that contribute to its current market value.


An investment property can be a long/short term investment, as investment properties generate some form of income, such as dividends, interest, and rents, investment properties are not used as a primary residence. This can fall out of the area of the property owners’ regular line of business, keeping note that an investment property and how it is used will have a significant impact on the value of the property.


What is a Pre-Mortgage Valuation?
A valuation that is a detailed inspection that will give the lender an independent confirmation of the property’s value. A pre-mortgage valuation will include checking the prices of similar properties that have sold in the area and showcase any features or significant defects that could affect the value of the property and if the property can be used as security for your mortgage.

The various types of residential properties that can be valued.


- Stand-alone houses
- Terrace houses
- Semi-detached
- Duplexes
- Townhouses
- Apartments
- Undeveloped land

The amount you can borrow is usually based on a percentage of the property value, if your mortgage valuation is lower than the offer price, this can affect your finances and the lender may refuse to lend you the amount you are requesting.
If this happens you have 3 options:


- Being unable to proceed with the property purchase.
- Having to come up with the additional funds so that you can purchase the property.
- Needing to choose a different lender who will lend you a higher portion of the property value (LVR). Loan to value ratio.

Before making an offer and seeking finance, potential buyers will conduct research to determine the best, and most profitable use of a property. The bank or lender will require the property be valued before they can approve the mortgage amount.
So, it pays to be prepared in all aspects of investing, and the first step would be getting home loan or mortgage advice. The best way to determine how this will impact or benefit your decision is with an independent property valuer.


A property valuer will conduct a pre mortgage valuation on the property. An unbiased assessment of what a property could sell for and is based on extensive research of the property itself, the local area, and recent comparable sales.
Other costs to consider when buying an investment property!

Buying an investment property is costly, in addition to the purchase price, you need to factor in other costs within your budget:

● Stamp duty: Varying between states/territories, the stamp duty on an investment property can be as high as 6% of the property value.
● Valuation fee: Costing anything between $400- $600, A valuation will save you in the long run, making sure you are not overpaying on your investment.
● Loan fees: Applying for finance, there is an application fee included. Depending on the bank/lender some may not charge for this.
● Legal fees and conveyancing costs: These costs are payable when you invest in property. However, they can be waived for investors in some cases.
● Transfer fee: Transferring ownership of the property, a government fee is required to register.
● Lenders Mortgage Insurance (LMI): when you’re borrowing over 80% of the value of the property, LMI can amount to thousands of dollars.

Keeping in mind there may be ongoing costs: council rates, water bill, maintenance costs, insurance, agent fees, and home loan repayments.


How can I prepare myself financially?
Buying your first property is exciting and daunting at the same time. Speaking with an independent valuer will give you a clear understanding of the process that you would need to consider.


Obtaining an independent property valuation will provide a detailed report, compiling of over 200 internal and external factors, to help you better understand the property and assist in making financial decisions. Having a clear understanding of your financial capabilities and responsibilities will help you build a strong foundation in purchasing your investment property. Therefore, it is beneficial to proceed with a comprehensive property valuation before committing to an investment property.


For more information on how you can obtain a specialised pre-mortgage valuation report that will be able to assess your capacity to borrow and secure an investment property, contact our team of industry experts today.


Author Bio
James Clarke - LinkedIn Profile
James Clarke is a Senior Property Valuer with a specialised skill set tailored towards litigation and settlement valuations. James has over two decades of experience conducting property valuations for all purposes and uses this expertise to create career development programs for our team of valuers at Vals NSW. In addition to this, he has presented at various industry conferences and tertiary education events.

 

 

 

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