Mortgagee Auctions May Not Provide a Bargain
Property buyers are very aware of the nature of a mortgagee auction and that most mortgagees (The Mortgagee selling the property) are very keen to sell for the highest price.
A mortgagee auction attracts a lot more attention than if it was sold by an individual real estate agent who negotiates an offer to purchase between the mortgagee (seller) and a buyer. It is important to remember that mortgagee auctions have a legal obligation to make an effort to get the best price for the property – that’s why they are auctioned.
As a buyer of at a mortgagee auction, unless you are holding a sworn bank valuation in your hands, you will possibly pay too much for the property. 100% of investors that attend an Auction are under the blind phenomena called ‘FOMO’ the Fear Of Missing Out.
Real estate investors should look at mortgagee auctions as nothing more than a ‘potential’ bargain. Without proper due diligence and a sworn bank valuation you may acquire a great piece of property without any potential to appreciate in value for many years.
Knowledge of the Local Market
Buying a real estate is not a light matter. You are investing a significant amount of money and it is important to have knowledge of the local market. So what if you are not familiar with a certain area? Well, it might be harder to get accurate information but it is certainly possible. In fact, a lot of investors have made money investing in “new” or “depressed” areas – places which they do not live in.
Real Estate Market Trends
Trends – you see national media outlets proclaiming doom and gloom for some areas. However, even the most depressed locations will have pockets or neighborhoods that do quite well despite a real estate crisis or price crash. If you don’t know where that is, don’t assume anything. Speak to our team at Mortgagee Property Limited to confirm what is an opportunity or mistake.
Real Estate Rental Rates
Rental Rates –if you are thinking of renting the property out, know the rental rates in the area first. If you do an incorrect cash flow analysis by assuming that the property will rent out for $1,500, for example, you may have a problem if it only generates $1,200. This is especially true if you were anticipating a positive return of $150-$200. Instead of a gain, you will sustain a $300 loss which will put a constant strain on your finances.
Real Estate Sales Prices
Sales Prices – property values change rapidly. It is crucial to be familiar with the current local sales prices. It is not unusual for properties to fluctuate in the $10,000 to $25,000 range within a few months. Whether you are thinking of buying or selling, picking the right timing is the key. Whatever the purpose of the acquisition, you need to look into the three factors provided above to make the right decision.
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Gearing Your LVR for a Disaster
Loan-to-Value Ratio (LVR) is the amount of mortgage divided by the value of the property. If your property is worth $1,000,000 and you have a balance of $500,000, the LVR of your home is 50%. This percentage lets you find out how much leverage you have. The LVR also quickly lets you determine your equity.
For property owners who have more than one loan against their properties, sum up the total of these loans to calculate the LVR. Say you also have a second loan of $250,000 on the property above. Your LVR would be 75%, this takes into account your initial debt of $500,000 plus the second loan you took out.
In essence, it is important to have as much equity in your home as possible. This will help you keep your property even in times of economic turmoil. In addition, you can actually borrow against this equity in the future. The money you take out can be used for a variety of purposes.