Join Australia's most dynamic and respected property investment community

Does land hurt your serviceability?

Discussion in 'Property Finance' started by bob shovel, 2nd Oct, 2015.

  1. bob shovel

    bob shovel Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    5,372
    Location:
    Somewhere in the land of Oz
    G'day PC'ians

    Quickie
    Does land hurt your serviceability in the short term after buying (before there's an increase in val)?
    Obviously there is no income but is it something to avoid when growing a portfolio?
    Say a block less than $100k in a regional area. No plan to dev in short term

    Is it frowned upon as there is no income generated? Relies on cg to help equity pull, or is it hard to pull land?

    Would it only be worthwhile if there were some really good sort term cg?
     
  2. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

    Joined:
    18th Jun, 2015
    Posts:
    8,970
    Location:
    Sydney
    Only if there is debt on it.
     
  3. D.T.

    D.T. Adelaide Property Manager Business Member

    Joined:
    13th Jun, 2015
    Posts:
    5,576
    Location:
    Adelaide, SA
    Yea if you buy it with a loan, because there's no income from it to counteract.
     
  4. Redom

    Redom Mortgage Broker Business Member

    Joined:
    18th Jun, 2015
    Posts:
    853
    Location:
    Sydney (West) and Canberra
    Yeah it does hurt in your scenario and it can be harder to finance as theres no rental income on it.

    Once you've purchased a block of land, if you plan on building on it later, that construction loan you may need can be easier as an investor (resi finance). This is because the rental income post construction/construction cost equation is generally quite high.

    E.g. you purchase land for 500k with a loan. You have to service that loan with zero rental income if theres no build contract. That can be really tough, but if you do service, the next part may be easier.

    You then decide to put a 500k construction on it with a build contract. You can then include the rental income. The rental income on the $1m worth of new property is generally very good and you're only seeking an additional 500k from the bank (construction loan). So if you've managed to get the loan on the first part, the second part may be easier to service.

    If you purchase a block of land that earns zero rental income with no intention of ever doing anything on it, it will hurt your borrowing power for other purchases. How much it hurts will depend on the amount of debt on that block of land.

    Cheers,
    Redom
     
  5. bob shovel

    bob shovel Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    5,372
    Location:
    Somewhere in the land of Oz
    Thanks guys. Thought that was the case. Unless there's good cg or bargain basement price it's going to hurt

    What about done varying scenarios
    1. Hobby farms, are they just treated as house on a big block and income is like being a contractor requiring 2 years of invoices tax receipts etc or being a "hobby" farm is more cash or unreliable income as it's not seen as full time and either not taken into account or only small %?

    2. Full time crops on >100 acre property. Does this fall into a totally different category. Business loans and different calculation factors? Specialist brokers (Elders?? Etc)
     
  6. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

    Joined:
    18th Jun, 2015
    Posts:
    2,143
    Location:
    Canberra and Sydney
    Short answer is yes it will hurt servicing because you've got a debt that's not generating income.

    If you had a hobby farm and can demonstrate two years of financials then it could be considered as income. However - resi lenders seem to get nervous whenever "farm" is mentioned in anything.

    Cheers

    Jamie
     
    bob shovel likes this.