Building on family land

Discussion in 'Loans & Mortgage Brokers' started by Rurallifestyle91, 29th Nov, 2021.

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  1. Rurallifestyle91

    Rurallifestyle91 Member

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    So my partner's family own several properties (rural) and they are A-OK with us doing a new build on one of the properties. Only problem is the bank will not lend us the money we need as the land title is not in our name. We have a 30% deposit saved and ready to go (more if needed) but have no idea what to do from here.....

    Is it possible to get around this issue if the land owners guarantor the loan?

    Is a ground/land lease a viable option? (Is a 99 year lease even a thing or is that just for Crown Land?)

    We have other home owner options available but we'd love to live with the rest of his family and farm the land as they do.

    We just are looking for a viable way to have the loan approved.
     
  2. Terry_w

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

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    IN theory yes, but in practice no. You would need to borrow against other property, or go on title - could be a trust to avoid triggering CGT and duty potentially.
     
  3. Rurallifestyle91

    Rurallifestyle91 Member

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    Borrow against our own property? We do have an investment property but can only borrow 100k against it which seems odd as the property has literally doubled in value since we bought it (new build 2 years ago) and had a 40% deposit for that as well so borrowed minimal originally. In my head this whole scenario was very straight forward as the funds are available - but how wrong I was! We had previously spoken to the bank about this as well and not once did anyone mention it being a problem.....
     
  4. Tony Xia

    Tony Xia Structured Loan Advisor Business Member

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    Pretty much impossible to get a loan against a property that is 100% titled against someone else's name unless they are your spouse.

    Only other way is to draw as much equity out and build with cash.
     
  5. Westminster

    Westminster Tigress at Tiger Developments Business Member

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    It wouldn't hurt to talk to a broker about this and get a full understanding if there is more available to release for the new house.
     
  6. Paul@PAS

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

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    Also consider the tax implications for the land owner. They are then part of the enterprise and will be legally liable for the GST issues from the build and the sale and its would be difficult for them to argue CGT applies. The enterprise seems like a isolated profit making matter and they are involved as the land owner. They cant argue all they did was allow you to use the land. They are a partner in partnership
     
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  7. Lindsay_W

    Lindsay_W Well-Known Member

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    There's your problem, get a decent broker asap is my suggestion.
    $100K could potentially build a granny flat

    As for borrowing to build a full house on the parents land, unless you're on title or the parents are the one's who borrow the money it won't work.
     
  8. Paul@PAS

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

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    Not necessarily. Partners in Partnership can personally borrow and incur interst and offset this against their share of the partnership ordinary income on completion of the dev. A partnership cant borrow however. But joint owners could. One problem will be determining what the fixed share of profit is....If its merely arbitrary none of the interest could then be deductible. But lets say there isnt a written agreement and Mum & dad inject land worth $600K and adult kids adds $300K (for the build) then it may be equal 1/3rd share of profit. Its a concern not to have this determined and given legal advice early. A solictor may produce a partnership agreement.

    eg Parents could borrow against their land and its later deductible to them. Adult child can borrow agaisnt their home to fund a build and thats deductible later to them. NOTHING is borrowed by the Partnership as it doesnt own land.
     
  9. wylie

    wylie Moderator Staff Member

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    Are you legally allowed to build a second residence on the land?
     
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  10. Rurallifestyle91

    Rurallifestyle91 Member

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    If we seek a broker and possibly remortgage do we need to provide the new build details? Won't they refuse to remortgage based on the original issue of the land title?
     
  11. Terry_w

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

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    Depends on the lender. You would borrow against the existing property. that is the security for the loan not the parent's property
     
  12. Rurallifestyle91

    Rurallifestyle91 Member

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    This is the conversation we had with the bank already and they refused amd offered 100k max..... We are offering up a 800k house for a 400k loan.
     
  13. Trainee

    Trainee Well-Known Member

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    There are other banks.
     
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  14. Tony Xia

    Tony Xia Structured Loan Advisor Business Member

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    Banks/Lenders are looking to see if you have the ability to repay the loan rather lending you based on LVR only.
     
  15. Rurallifestyle91

    Rurallifestyle91 Member

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    They had just recently quoted us up to 1 million to borrow. Based on our income and the current investment property. Now they basically won't talk to us?
     
  16. Terry_w

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

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    what is the value of your existing loan?
    $1mil might be your potential borrowing cap, but if the security is just worth $800 you could only potentially borrow $640,000
     
  17. Rurallifestyle91

    Rurallifestyle91 Member

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    The existing loan for the investment property is 300k. With 100k+ in an offset. We want to borrow 400k for the new house and have 200k available for the deposit.
     
  18. Terry_w

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

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    You could potentially borrow up to $340k more
     
  19. Rurallifestyle91

    Rurallifestyle91 Member

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    In total or on top of 400k?
     
  20. Terry_w

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

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    You said that, but now you are saying existing loan is $400k?

    The max you could potentially borrow is 80% of the value of the security. $800,000 x 80% = $640,000
    that less existing loan secured by that security.

    Note that if your security is rural it could be a lower LVR and you still have to pass serviceability and overcome the cash out restrictions
     

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