property purchase with extended settlement

An associate has a block of land they have offered to me (a builder) on an extended settlement (he says 18 months). It's reasonably priced. His notion being I could build and rent it for a period before I have to pay for it but I cover the rates in the meantime. I could finance the build out of pocket but would need to get finance for the land so I really don't know how deeds and legals etc could work here. Any ideas welcome. Thankyou.

 

You need to have a clause within the purchase contract that allows you to have access prior to settlement..

Risk is that if for some reason you are not able to settle, the seller keeps any improvements made.

 

Yes that could be done - but could get messy so get legal advice.

There are also tax implications on both stamp duty and CGT - land tax too I guess! And don't forget GST.

Why not just transfer it now?

 

terrible idea to build on it prior to settlement, not just because you'd be using cash. unless you've got a bucket load of cash lying around that's a waste of precious capital. whats the benefit of doing so apart from saving some interest on the block during construction? how much would it cost you to take the seller to court if they refuse to settle after you've built?

 

thanks everyone, I get the problems with it, Sanj the benefit is getting rent for 14 months but I hear you re: not settling. I know developers do it with builders sometimes but I don't know how robust the legal process is.

 

The legal process would be pretty straight forward. The owner legally owns the building as trustee for you under a constructive trust until settlement. If settlement never happens you would have strong grounds to get compensated somehow - forcing sale etc.

 

absolutely the legal process would indeed be straightforward but doesn't mean it will be quick or cheap.

also, what happens if in the interim between today and settlement developers runs into trouble and defaults on the whole project? where would @MacBeth sit, assuming there was a caveat lodged once contracts signed etc?

 

certainly wouldn't be cheap if it went to court. The owner would have mortgaged the land with buildings attached to the land being classed as part of the land. So Macbeth would have to take on the mortgagee.

 

Think the take home message for me is not worth the learning curve let alone the risk. Again..much appreciated everyone.