Accessing equity in unfinished off-the-plan purchase?

Discussion in 'Loans & Mortgage Brokers' started by thatpropertygirl, 7th Apr, 2021.

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  1. thatpropertygirl

    thatpropertygirl New Member

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    Hi all,

    Details:
    - I signed a contract for an off-the-plan townhouse in July 2020, wanting to capitalize on the various government grants available (FHO). Will live in for the 6 months required, then rent out and hold.
    - Settlement is of course not until completion, expected to be somewhere between December 2021 and March 2022.
    - Purchase price locked in at $372k. Last month, one of the other un-sold identical units (and I mean literally identical) sold for $435k. Growth of +$60k to date.

    A question came up in conversation with friends last night - would a lender be willing to 'unlock' the equity on the basis of a contract alone? Could the equity in the contract be used as a deposit for an IP?

    I realize this is unlikely and high-risk for the lender, but has anyone managed to do this before, or heard of it occurring?
     
  2. Marg4000

    Marg4000 Well-Known Member

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    Hard to see how you can borrow against a property you don’t own.
     
    Terry_w likes this.
  3. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    nope
     
  4. thatpropertygirl

    thatpropertygirl New Member

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    Agree, but it was interesting point of discussion, figured worth asking the question!
     
    jaybean likes this.
  5. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    There are many in this position with house and land construction contracts. The land has appreciated well prior to title being issued and settlement. Lenders arent allowing enhanced borrowing because the land has risen. If anything it may mean some borrowers avert LMI if they stall their build contracts. It just helps make the approval easier when a lender knows it has resale value above cost.
     
    thatpropertygirl likes this.
  6. Trainee

    Trainee Well-Known Member

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    How does the depreciation look when you rent it out, after you live in it?
     
  7. thatpropertygirl

    thatpropertygirl New Member

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    Honestly, only just recently realised depreciation on investment properties is even a thing. I'm still learning and reading, so don't know yet how much this would be.
     
  8. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    You will not be able to claim depreciation on fixtures and fittings once lived in and then rented out.
     
  9. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    With first home ownership concessions its never really a option as you must live in the property for 6months as a qualifying condition etc and the owner/s just has to accept their later depreciation deductions will be limited to Div 43 capital allowance and not Div 40 for plant and equipment and fittings. The policy on Div 40 is it is being phased out progressively and only a continually rented place (from new) can continue to access the benefit.

    I question how long Div 43 will be allowed to retain this difference. Standardising the approach could occur. It could decimate the QS industry however.
     
  10. Tony Xia

    Tony Xia Structured Loan Advisor Business Member

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    You cannot release equity on a property that's not completed and not yours.

    However if the valuation comes back higher then purchase price ( since the contract is signed 12 months before settlement) some banks will lend you the higher valuation amount, meaning less deposit to pay or some deposit back in your pocket.