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Purchasing vacant block of land

Discussion in 'Property Finance' started by Beelzebub, 27th Sep, 2015.

  1. Beelzebub

    Beelzebub Well-Known Member

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    Hi finance gurus

    If I was to purchase a vacant block of land what things do I need to keep in mind re finance?

    The general idea would be to purchase, sit on it for 12 months and then build a shiny new PPOR.

    Can I purchase and pay the mortgage interest only during the period I'm not building?

    What sort of LVR do I need for a vacant block where I won't be building straight away?

    Cheers
    Beelzebub
     
  2. Shahin_Afarin

    Shahin_Afarin Residential and Commercial Broker

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    Some lenders like ANZ and Macquarie will require you to state that its your intention to build within 12 months. Other lenders do not impose this.

    The maximum LVR varies between lenders but you are able to do 95% with several lenders (such as Westpac, CBA, etc)

    You can choose to pay either P&I or IO.
     
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  3. EN710

    EN710 Well-Known Member

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    @Shahin_Afarin any if the above do not have LMI at lvr above 80%? Assuming the land is for PPOR
     
  4. Shahin_Afarin

    Shahin_Afarin Residential and Commercial Broker

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    Westpac is the only lender doing 85% no LMI. If you are of a certain professional you may be eligible for 90% no LMI (Accountant, Engineer, Athlete, Politician, Solicitor, etc).
     
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  5. DaveM

    DaveM Adelaide Buyers Agent & KFC Strategist Business Member

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    Professional, politician and job stability in same sentence? :D
     
  6. EN710

    EN710 Well-Known Member

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    How about bank staff? :D
     
  7. Shahin_Afarin

    Shahin_Afarin Residential and Commercial Broker

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    Bank staff can get the 90% as well with their own bank however CBA can accept bank employees from other lenders (has to be a major lender and not say Macquarie).
     
  8. Beelzebub

    Beelzebub Well-Known Member

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    Perfect, that is good information to have. My plan
    1. Save the 5% Deposit
    2. Keep on saving between putting down deposit and titling
    3. Get finance, hopefully without dipping into equity on current properties
    4. Convert current ppor to interest only and pay down block for 12 months possibly longer
    5. Use equity in current ppor to build and cover holding costs
    6. Convert current ppor to IP
    7. Buy IP 3 sometime in the future

    Reason for gap between purchase and build is due to other half wanting child 2 and not wanting to move yet. Don't want to miss out on this estate as last blocks within walking distance to beach

    Anything else I need to consider?
     
  9. tobe

    tobe Well-Known Member

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    I'm a broken record. Get a build contract and have the finance approved for both at the same time. It doesn't mean you have to build right away, but it does mean you get a val for both upfront and have a builder ready with a contract should you need to proceed faster than intended.
    I hear you about being the last release near the beach, however don't expect any capital growth in the land in the short term.
    I do t like relying on growth (of your other IP) to fund the build either, if the numbers don't work now, you will be lucky to have them work in 12 months time.

    Get 5% of both the house and land either from savings or equity, build an investment property. When it's done either rent it out for a year or move straight in depending on your circumstances.
     
  10. Redom

    Redom Mortgage Broker Business Member

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    Just double/triple check your servicing for the build component as well - don't want to run into issues with buying the land but not being able to service the construction loan down the track. This can cause a major headache (similar to OTP financing headaches where uncertainty financing factors aren't considered at the time of purchase).

    Best to model it with your planned lifestyle changes too.

    Cheers,
    Redom
     
  11. Beelzebub

    Beelzebub Well-Known Member

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    So I can enter into a contract to build but put the build off for 12 months or more?

    Just to clarify I won't be relying on growth in my IPs. I'm hoping to save the full deposit between signing the contract and titling. If I fall short with my saving or if titling gets brought forward I can tap into the growth already present in my current ppor or my IP. But I'd rather not so that I can use this equity to build and buy another IP when this build process is finished. There should be enough equity without needing any growth at the moment.
     
    Last edited: 27th Sep, 2015
  12. Beelzebub

    Beelzebub Well-Known Member

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    Thanks Redom, will definitely make sure I do.

    Will be second child and I'm told we will need a bigger place for child number 3. I'm hoping my serviceability calculations will be okay.
     
  13. tobe

    tobe Well-Known Member

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    Yes it's possible to enter a contract and not start for a time. The builder may have some form of time/price ratchet clause, but they will usually price it to build it in the timeframe of when the land is titled.

    If you have the equity to do both now, do both now. Who knows how difficult this might be in the future.

    Paying a mortgage on land while you are also paying one on your ppor and trying to save money as well isn't economical. Build as soon as the land is titled, when it's finished rent it out if your not in a position to move in yourself.

    I highly doubt you can find a broker here that disagrees with the concept of taking an equity release now rather than in the future. Especially in the current environment.
     
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