Loan for future land sub site

Discussion in 'Loans & Mortgage Brokers' started by lixas4, 17th Apr, 2020.

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  1. lixas4

    lixas4 Well-Known Member

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    Im looking at a site which will be a land subdivision site in about 3 years, but its not ready yet.

    In the mean time, i would like to hold it under a residential investment loan, if possible, instead of a land banking commercial loan.

    It has a house on it which can be rented out until its ready for subdivision. It doesn't have a permit or anything that would indicate its a land subdivision site yet.

    Is it possible to purchase under residential finance now with an approx 3% rate, then refinance in 3+ years when we want to do the subdivision to help cover some soft costs, or we could possibly self fund the soft costs and just refinance at construction loan point (about 4 years away).

    Are there any consequences for getting a residential investment loan then starting a commercial sized subdivision 3 - 4 years later?

    Does the purchasing entity affect the lenders view, ie if its purchased under a company/trust v individual
     
  2. Terry_w

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

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    yes possible
    I cant think of any adverse consequences other than holding costs.
    Ownership entity will affect who the borrower and mortgagor will be and this does have an effect on the loan.
     
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  3. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    Size, location, current use, sales brochuring, REA's that cant play poker, and similar nearby developments can combine to a tattoo so that only comm lending is likely

    25 acres with resi house and up to 100 acres ( sometimes a bit more) if non income producing is usually easy as long as one can demomstrate holding intent.

    Not enuff data, I expect your banker/broker can advise.

    ta
    rolf
     
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  4. lixas4

    lixas4 Well-Known Member

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    @Terry_w & @Rolf Latham - thank you for responding.

    The size is fairly small. Its a 1ha site, the sales brochure has a concept plan for 27 lots over two sites with two different vendors, I am only wanting to purchase one of the sites which has the house on it. There is no permit for my site, but their is for the next door site which the concept plan includes.

    Current zoning is neighbourhood residential land, use is rural lifestyle property with one house on it and being lived in by the one owner occupier for about 30 years. We will be renting out the house.

    There is a planning scheme amendment for the site with a 'Development Plan Overlay' proposed, it is still in panel hearing stage and I expect it to be gazetted and enforced towards the end of the year. We expect to settle prior to this date if we can get residential finance, if we cant get resi, then we will be going for an extended settlement.

    We may or may not go for a permit straight away, there are benefits if we get the permit prior to the introduction of the development plan overlay, so we may if it is possible, but we may delay if it will affect the resi finance.

    At the moment all the abutting properties are still vacant land with no endorsed subdivision plans, even though some of the abutting lots have got permits.

    How much due diligence do the residential finance lenders do on the site if their is no permit, and a house that can be rented?

    If we purchase in a unit trust (special purpose vehicle), would that be a give away? I haven't received advice (tax/legal/finance) yet on what to do for this, just trying to work out what the different moving pieces are and our options.
     
  5. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    if u were our Team's client, and a resi loan was prio we would suggest some of the following

    1. If its a resi dev site, changes are any full valuer will want to do a LONG form val, because the REA marketing piece is obvious, that will usually land u in comm lending
    2. If the site is being sold with added dev potential, dont expect a resi lender to recognise that potential
    3. We would get a deskie val and rely on that. It will be lower than the sales price but often 65 % at resi terms is a better hold proposition if one has the cash or equity.
    4. Often, if the sales price is higher than a deskie, the lender will force a full and we are back at 1.
    5. It its mission critical to get resi based holding finance - its possibly the wrong investment due to insufficient ongoing resources.
    ta
    rolf
     
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  6. Terry_w

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

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    Yes prob won't value up at purchase price