Trading Property for Property - Equity is what is traded
Tuesday 26 January 2010, 10:20AM
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Property Trading is becoming more popular as people seek to position themselves to maximise equity in their property and get into another property for the future. The biggest problem we see are people not understanding what trading a property entails, in alot of circumstances some estate agents are way out of their depth suggesting people trade a property.
Equity in a property - the value between the registered valuation , CV or sale price and what is owed on a property to a lender.
When you seek to trade property you are trading equity for equity, this must be established first as 90% of transactions fall over due to the other party not having equity to get the required funding to purchase the property they are trading to.
Example
Couple from Remuera children have left home want to trade down to smaller property in St Heliers, Auckland
Property in Remuera, Auckland Registered Valuation $1,800,000 equity of $1,200,000 owe the lender $600,000. Take into account realestate agent fees and solicitors fees (eg $55,000) they may have $1,045,000 equity if they don't put further cash into the transaction.
Hence $1,045,000 equity to purchase along with income to debt service a new loan if required.
Family in St Heliers need a bigger home so want to relocate to Remuera for schooling.
Property in St Heliers Registered Valuation $$1,250,000 equity $600,000 owe the lender $650,000. Take into account real estate agent fees and solicitor fees (eg $30,000) they may have equity of $570,000 if they don't put any further cash into a new purchase.
Hence $570,000 equity to purchase along with income to debt service a new loan if required.
The couple from Remuera have $1,045,000 to buy the St Heliers property for $1,250,000 so need a $205,000 loan or their own funds.
The family from Remuera have $570,000 to buy the Remuera property for $1,800,000 so need a $1,230,000 loan.
As this family has double its mortgage out goings unless they can borrow this amount the transaction will not work.
We see alot of near mortgagee sale situations on large commercial transactions where the properties themselves are great buys but the owner is leveraged beyond any finance company or banks criteria. Trading is a way to get out of the large mortgage but finding a trade where a potential buyer has the equity in their own property is a hard one.
If you are needing to trade or have a large mortgage and want advice on restructuring or how to utilise your equity call Kent Finance Ltd
Ph 0800 80 90 60