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Difficult properties to finance

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All properties are not created equal

Property buying largely depends on your ability of obtaining finance. To improve your chances of successful financing try to avoid buying the following (high risk from a banking credit policy perspective) types of properties; Banks have a selective approach on the types of properties that they lend against.

1. Avoid high-density housing near a CBD – high density limits your borrowing loan amount (borrowing with restrictions) on the property (high density > 30 Units, or where your property is located in a block where there are more than 3 levels in the building and more than 30 properties in total in the building or block). Please also note that properties in the postcode range of 2000 and 2020 may fall within the high density zoning and maximum borrowing amount is limited to 80% of the valuation amount. Check with your lender before making a formal buying offer.

2.  Avoid apartments that are under 45 sqm (internal) and houses that have 2 bedrooms or less.

3.  Avoid apartments that do not have at least one car space or garage. This is not a lender requirement however, a property with a car space or garage does make up for a more attractive investment.

4.  Avoid properties that are offered with a rental guarantee as the majority of lending institutions will not consider in taking this type of property as suitable security, especially if the property will be used as a serviced property arrangement.

5.  Avoid heritage protected properties as the local councils apply many building and renovations restrictions and you are also limiting your re-selling market as many first home buyers and investors are steering away from this type of properties.

6.  Avoid serviced apartments as banks limit the rental income only to 60% for calculating your borrowing power and the majority of lending institutions will not consider in taking this type of property as acceptable security.

7.  Avoid properties that need major renovations unless you have large deposits of at least 50% of the purchase price as bank valuations will always come in lower or factor in the risk of renovations.

8.  Be mindful when buying off the plan projects; many projects can take up to two years or more in construction phase and your financial circumstances might change (unable to obtain finance when settlement time comes around) and exposing yourself to a major financial loss if you are unable to complete the settlement. Make sure that the developer has extensive experience in these types of projects. Lenders these days don’t really have an issue with issuing pre-approvals to customers wanting to exchange on a contract of sale. Please note that at this stage of the transaction the lender can only offer a pre-approval subject to the property been completed and subject to a final and suitable property valuation.

9.  Avoid company title properties as selling them at a time of need may be very difficult as there are restrictions on undertaking renovations and other important aspects that limit the purchaser market and hence the appealing factor is not as desirable as one of a typical standard property.

Always obtain a finance approval prior to exchanging the contract of sale on any property. This will ensure that your the lender is satisfied with the property you have selected and that settlement will proceed as planned.

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About Author

BPRE Real Estate is a locally-owned and operated Sydney-based Real Estate Agency specialising in the sale of new, established and off-the-plan properties. We hold a Real Estate Licence together with an Australian Credit Licence with experienced support staff in the areas of property investment, real estate sales and finance services.

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