The Financial Report
My financial report brought together all the information I had collected.
The contents page read as follows:
- Personal balance sheet
- Detailed financial analysis
- Copy of independent bank valuation
- Copy of quantity surveyor’s report
- Twelve-month rental estimates
- Salary confirmation
- Individual credit report
- Comprehensive insurance cover
- Evidence of comparable sales
Securing your loan by providing a financial report
I hope this comprehensive document will be the key to securing an unlimited number of investment home loans, which will lead to my becoming a millionaire. In the immediate future, I hope it will enable me to refinance my existing home loan.
The report comprised hundreds of pages, and I doubt that anyone other than myself has read its entire contents. Nevertheless, the size of the document gave the impression that I had prepared it thoroughly, as indeed I had.
I included all the information listed above because I want the lending institutions to accept my financial report and all its reports, letters, inclusions and conclusions as true and correct.
Why rental estimates help
Item 5 in my financial report is the twelve-month rental estimates. Initially, I obtained these estimates for the benefit of the valuer, prior to obtaining an independent valuation of my apartment. Later, I used the average of the three rental estimates to complete my financial analysis and help me determine whether my investment would be positively, negatively or neutrally geared.
I included the rental estimates in my financial report to support my financial analysis, and to show that my rental figure was not an over-inflated fabrication, but a reasonable expectation based on information provided by local estate agents.
Provide comparable sales evidence
Item 9, the comparable sales evidence, was also collected primarily for the benefit of the valuer. I included this information because it shows similar properties to mine that sold for far more than my property.
Banks are only interested in the valuer’s opinion, but including my own sales evidence supports the generally accepted view that valuers are usually conservative in their estimates.
Choosing valuation firms
Banks expect valuers to be conservative and will not dismiss the valuer’s estimation. By including comparable sales, I am providing further evidence that the bank’s money is safe. If my loan application hangs in the balance, this additional information may be the added security the bank needs to approve my loan.
Another reason for including my comparable sales evidence is that although I obtain my independent valuations from a firm approved by the bank, the bank may still insist on obtaining their own valuation.
Banks may do this because the bank’s list of preferred valuers is usually broken up into smaller lists, recommending particular firms for particular geographical areas. Therefore, the valuation firm I use may not be the bank’s preferred firm for the area in which I have purchased my investment property.
Of course, there are far too many valuation firms and valuers to get to know them all. When I choose a valuation firm, I base my decision on which firms appear on the panel of all the major banks. The firm I use is a large, reputable, well known company. Within this firm I use a particular valuer.
Through numerous dealings I have developed a rapport with my preferred valuer, and by demonstrating my knowledge of the real estate market I am able to obtain satisfactory independent valuations. To maintain this relationship, I use the same valuer regardless of the property’s location.
When the bank chooses another valuer
Sometimes my preferred valuer is not the bank’s first preference for that particular area. In these instances, the bank sends a copy of my independent valuation, and my comparable sales evidence, to their preferred firm, and requests a new valuation. The new valuation figure has always concurred with my figure.
The most likely reason for this is that valuations are subjective. Unless the second valuer strongly disagrees with my independent valuation figure and is able to support his or her own opinion, he or she will simply concur with the first valuer’s estimate to avoid dispute. A second valuer is more likely to concur if the first estimate came from a large, reputable firm.
A valuation can, however, be disputed. If relevant information was not taken into consideration, the valuation can be changed. Remember that a sworn valuer can be sued for negligence.
If a valuer is presented with another recent valuation from a respected firm, together with supporting documentation and sales evidence, the path of least resistance is usually taken.
Finally, when a bank requests a new valuation, I always comply, but I refuse to pay for the second valuation. After all, I have already incurred costs by using an approved valuer from their panel. The banks I used have always agreed to meet the cost of a second valuation, if they required one to satisfy their internal policies.
Summary
- Make a comprehensive financial report
- A detailed financial report increases your chances
- Include comparable sales in your financial report
- Choose your own valuer and develop a good relationship with them
- Have the bank pay if they require a second valuation
