How to Lose $27,000!
Several months ago we received a phone call to give a second opinion on a situation that was truly horrifying to hear.
Husband and wife, "we will call them Shaun and Jane" were first time investors and had decided to purchase an investment property.
They were earning just over $92,000 of combined income with equity of $150,000, small super and small savings between the two.
They were comfortably paying their mortgage off and early this year they decided to buy an investment property in Melbourne.
They Google'd local investment property organisation and through them found list of properties.
Finally they set their hearts on an apartment that they thought, will eventually sell to those city view loving buyers.
They were working with a property investment organisation whose name we rather keep anonymous.
One of the advisors insisted that they leave a deposit on the apartment as they "fly out the door" so they did by taking the funds form their own savings.
They left a deposit of $27,000 thinking everything is going according to plan until their finance broker delivered the bad news that the bank wouldn't give them the loan as the property valuation came short by $18,000.
This meant that the value of the property is above what the market price is and what the bank thought it should be worth.
The couple now, had to come up with additional $18,000 fast or lose the deposit of $27,000.
This also meant they are now in negative balance, with monthly home loan repayment due soon.
Even if they borrowed the money from family of friends this still meant they are buying an overpriced property while borrowing equity in existing home and they would have to live in debt from pay check to pay check to sustain the existing loan repayments, not to mention additional funding required for the second loan plus initial legal fees, etc.
So we looked at the deposit terms and the clause in their "agreement".
We found avenues to exercise a legal power through third party to recover 95% of their deposit.
Although they lost several thousands, majority of the funds were recovered, placing them in a comfortable situation again.
Their Finance Broker had no fault as the loan related assessment information was given to them after the deposit was taken form the couple.
The builder had no fault here as the investment property organisation was attempting to sell the property at higher value by adding own costs and fat profit margin that obviously didn't pass with the bank as the property became overpriced compared to the market value.
The agent was found to be at fault, while they also failed to act on the client's behalf, conduct research, return on investment analysis and all the relevant information to make sure these couple were making the right decision.
So let's learn a lesson from this cold hard fact.
You never rush into property investment with anyone without looking at the information and seeing that all the figures are working for you and not against you.
You need to have at least 5 year plan.
You need to have a financial strategy to protect yourself in case there is an illness, loss of job or other matters that will stop the flow of income to sustain the loan repayments and ultimately causing you lose your investment property or your home and the equity in it.
Request from your investment property adviser property value report within 1km radius of where you are planning to purchase your first home or the investment property.
You are paying your investment property advisor fees for their services so you need to make sure they are working hard for you to minimise or mitigate any foreseeable risks.
Husband and wife, "we will call them Shaun and Jane" were first time investors and had decided to purchase an investment property.
They were earning just over $92,000 of combined income with equity of $150,000, small super and small savings between the two.
They were comfortably paying their mortgage off and early this year they decided to buy an investment property in Melbourne.
They Google'd local investment property organisation and through them found list of properties.
Finally they set their hearts on an apartment that they thought, will eventually sell to those city view loving buyers.
They were working with a property investment organisation whose name we rather keep anonymous.
One of the advisors insisted that they leave a deposit on the apartment as they "fly out the door" so they did by taking the funds form their own savings.
They left a deposit of $27,000 thinking everything is going according to plan until their finance broker delivered the bad news that the bank wouldn't give them the loan as the property valuation came short by $18,000.
This meant that the value of the property is above what the market price is and what the bank thought it should be worth.
The couple now, had to come up with additional $18,000 fast or lose the deposit of $27,000.
This also meant they are now in negative balance, with monthly home loan repayment due soon.
Even if they borrowed the money from family of friends this still meant they are buying an overpriced property while borrowing equity in existing home and they would have to live in debt from pay check to pay check to sustain the existing loan repayments, not to mention additional funding required for the second loan plus initial legal fees, etc.
So we looked at the deposit terms and the clause in their "agreement".
We found avenues to exercise a legal power through third party to recover 95% of their deposit.
Although they lost several thousands, majority of the funds were recovered, placing them in a comfortable situation again.
Their Finance Broker had no fault as the loan related assessment information was given to them after the deposit was taken form the couple.
The builder had no fault here as the investment property organisation was attempting to sell the property at higher value by adding own costs and fat profit margin that obviously didn't pass with the bank as the property became overpriced compared to the market value.
The agent was found to be at fault, while they also failed to act on the client's behalf, conduct research, return on investment analysis and all the relevant information to make sure these couple were making the right decision.
So let's learn a lesson from this cold hard fact.
You never rush into property investment with anyone without looking at the information and seeing that all the figures are working for you and not against you.
You need to have at least 5 year plan.
You need to have a financial strategy to protect yourself in case there is an illness, loss of job or other matters that will stop the flow of income to sustain the loan repayments and ultimately causing you lose your investment property or your home and the equity in it.
Request from your investment property adviser property value report within 1km radius of where you are planning to purchase your first home or the investment property.
You are paying your investment property advisor fees for their services so you need to make sure they are working hard for you to minimise or mitigate any foreseeable risks.
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