PPOR House & Land Purchase Finance

Discussion in 'The Buying & Selling Process' started by Goosehead, 22nd Feb, 2021.

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  1. Goosehead

    Goosehead Well-Known Member

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    Hi All, having a theoretical discussion at the moment. This is in regards to purchasing a block of land and building a house on it and having enough deposit to pay for one or the other. It is a PPOR not an investment property. Would you borrow the land cost and pay cash for the build or Would you go the other way round?

    My thoughts are the land is hopefully appreciating and the building depreciating l. So borrow the land cost as it will grow to offset borrowing costs. The house is depreciating so your not paying interest on a loan for an item that is going to require repairs and maintenance.

    Splitting hairs really I guess but I’m wondering if someone with more grey cells than me might know a technicality that provides guidance one way or the other.
     
  2. Peter_Tersteeg

    Peter_Tersteeg Mortgage Broker Business Member

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    My suggestion would be to borrow a bit for both, leaving you with plenty of surplus cash to accomodate for problems or variations that may come up during the build process.

    If you pay cash for the land, you can borrow for the build but may not have much cash to pay for anything extra the comes up. Getting more finance part way through the build process is difficult.

    If you borrow for the land and build with cash, that's easy, but make sure you've got plenty of extra cash for the same reason.

    If you find yourself at the end of the build with surplus money, you can always make a lump sum payment to reduce the loan.
     
    craigc and Firefly99 like this.
  3. Goosehead

    Goosehead Well-Known Member

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    Qld
    Of course that’s what I wanted to hear. If you you have more than enough for the build, pay for that in cash however borrow the land cost and pay back anything not required for the build. That is a good idea.
     
  4. Peter_Tersteeg

    Peter_Tersteeg Mortgage Broker Business Member

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    Ideally as a rule of thumb, have at least 10% surplus on the build cost to cover any contingencies.

    If it's a bulk builder (Metricon, AV Jennings, etc) there's usually no real variations, but often you'll need extra money for landscaping, fencing & driveway. At least double check to verify if this is included.

    For a custom build, it's very easy to overlook lots of little things, having extra cash available can be the difference between a house that is built to the plans and a home that works really well for you.