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Mortgagee sales – how to find a winner, not a write-off



 In my last blog I touched on mortgagee sales as a value-adding strategy when seeking out instant equity. 

While the number of mortgagee sales on the market appears to be on the decline after hitting a peak in 2012 following the effects of the GFC, the numbers are still significant.  In the 2013 financial year nearly 4,000 homes were repossessed in WA, NSW, Victoria and Queensland alone, according to various state court reports. 

Adding to this is the concern from the RBA that many home buyers currently taking advantage of the low interest rates are failing to factor in future rate rises.  Meaning that, when rates inevitably go up, many may not be able to afford their mortgages, resulting in another bout of repossessions. 

It is a grim prospect for the owners and the economy.  But for investors, mortgagee sales can provide excellent opportunities to pick up an asset at below market value. It’s not uncommon to see these types of properties to sell at a discount of 10 to 15% and with some additional TLC, these properties can provide rapid financial rewards.

However, investors should proceed with caution.  Not all mortgagee sales represent a good investment.  After all, the vendor is still there to get the best possible price and they will be well aware of what the property is worth.

Here are some critical questions you need to ask when considering a mortgagee sale to ensure you pick a winner and not a write-off:

Have you done your research?! As with any property investment, research is crucial when considering a repossession.  A ‘bargain’ in an area with poor growth prospects and rental return due to its poor location and infrastructure, and requiring significant renovation, is not a bargain at all.  Note that several repossessions in the same area can drag down house values.

Is it habitable? Keep in mind that the property may have been stripped of anything of value such as appliances and furnishings.  The effect of this is two fold: it will not only add to the costs of the purchase because these items will need to be replaced before it can be tenanted, but your lender will also require the property to be habitable as a condition of the mortgage.

What maintenance or renovations does it require? This can also be another significant issue affecting the ‘value-add’ of mortgagee sales.  It’s safe to say the owner has been struggling financially, so it’s likely the property won’t have been properly maintained meaning additional funds will be required to bring it up to a standard where it can be rented or sold again.  This may offer up a fantastic opportunity for a money-making renovation – just be confident of what the renovations will deliver in equity terms to avoid over-capitalising.

What will be the settlement timeframe?  Most properties will be vacant but selling a property that’s still tenanted is not unheard of and could delay settlement.  On the other hand, remember the vendor is a bank and they will want to settle in the shortest timeframe possible, unless hindered by a tenant. Know what the settlement timeframe is likely to be and be well prepared with finance and documentation to avoid any penalty fees.

What will happen at auction? Mortgagee sales are always conducted via auction and can generate a lot of buyer interest due to the expectation of a bargain.  This competition among buyers can therefore drive up the price to a point where the discount no longer exists and the potentially exciting equity gain becomes much less viable.  If you’re worried about the auction, consider hiring a professional bidder to bid on your behalf.  They will take the emotion out of the bidding, ensure you stay within budget and can help advise on what the property is worth.

In short, make sure you’re aware of ALL the costs involved with the purchase of a repossessed property before you buy it, know what it’s worth and stick to your budget. Mortgagee sales are one example where it’s highly recommended that you inspect the property prior to purchase








Value adding – how to sniff out instant equity



With many capital cities and regional centres around the country tipped for double digit growth in 2014, it’s time to focus on how to take full advantage of the market and products available to accelerate your equity and portfolio development.


Selecting the right “value add” property is the key to rapidly increasing your portfolio and investment returns.

Homes on blocks with sub division potential

Blocks with sub division potential– allowing you to divide, develop, sell or lease the new property – provide significant opportunity for creating instant equity.

While sub dividing can be highly rewarding, it can also be a very complex process.  Thorough due diligence is paramount as there are a number of factors to take into account that will affect the success of the project.  These include zoning, access and drainage, among others. 

Multiple discussions with the local council and other consultants such as engineers and architects will be required to ensure you meet all relevant government regulations and develop a property that will appeal to the market and make you a profit.

H&L products

One of the greatest advantages of a house and land package is the instant equity that can be generated. Locking in construction and land prices through a fixed price contract means that in a rising market, any increase in the value of the property between when the contract was signed to completion and handover is to the benefit of the buyer. 

It is not unusual to see in well-researched markets that, following the typical five-month build timeframe, the completed property is worth an additional $100,000 over costs to construct. 

Purchasing a house and land package early on in your investment journey can provide you with the immediate funding ability to make another investment.

Off the plan properties

With construction of off the plan properties often taking six to 12 months, investors are given an extended timeframe to settle. In a rising market, investors can take advantage of this additional time to generate capital growth. As the property is purchased based on a fixed price contract, any equity the property generates between the deposit payment and settlement is the investor’s capital gain. 

Renovation projects

Astute property investors can add substantial capital value to older style properties especially if homes in the area are undervalued, run down or rented below the market. When undertaking reno projects, it’s essential to consider the leasing market in the property’s location. The renovations must appeal to the local market if you’re to achieve the full rental potential of the property and avoid overcapitalising.

Mortgagee sales

Mortgagee sales – where banks are forced to sell properties due to unpaid mortgages – can offer excellent opportunities to pick up investments at below market value.

It’s not uncommon to see these types of properties sell for 10 to 15% below the market – the banks are typically desperate to sell and know buyers expect a discount.

Seeking out properties with the potential for ‘instant’ equity will enable you to take full advantage of the rising market, purchase again quickly and give your portfolio a real boost in 2014!