When you purchase an investment property, your lender will at some stage value the property and may also value your own home if you are using your home’s equity. The bank will often employ the services of a panel valuer to determine the security value on each property.

Keep in mind this valuation can be quite different to a sale price established by the researcher and vendor. The bank valuation is often arrived at by considering a relatively short selling period. Time constraints mean a valuer may only undertake limited research of the local area. As a result, bank valuations can be lower than ‘sale price’ — this is not unusual. It is our experience that a 10% variation between purchase price and bank valuation is not uncommon.

Before placing an Expression of Interest, ask yourself if you have enough equity in your current properties available to cover a low valuation in the event that you receive one. If you receive a ‘low valuation’ the best solution may be to use a different lender and valuer (a second opinion). Your Property Loans Mortgage Professional and/or Property Mentor can assist with some alternatives at this time.

If you are borrowing more than 80% of the property purchase price, you many need to pay Lenders Mortgage Insurance (LMI). Lenders Mortgage Insurance covers the lender and not you, the borrower, even though you pay the premium. While some investors see Lenders Mortgage Insurance as an unnecessary cost, it also has a significant ‘hidden’ advantage. Besides being a tax deductable expense (talk with your PM about this) it can extend an investor’s available equity by requiring a much smaller ‘deposit’ on the purchase, and therefore improving their overall property investment strategy by allowing further purchases sooner.

To find out more about how valuers assess the market value of properties click here