# Borrowing to buy land



## crackaton (11 June 2006)

Anyone know what the procedure is to borrow money to buy land? Is it treated as a home loan? How would I go about it? thanks.


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## Jay-684 (11 June 2006)

I have no real world experience with home loans, but provided the land is located in a area with a decent amount of demand and recent sales to compare the subject land with, I dont see why it wouldnt be the same as a home loan. Are you planning to build on it?

Think of all the people who would borrow to get the vacant land at the new land release sites in western sydney

I'll watch this thread with interest


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## 123enen (11 June 2006)

Not much experience here- I remember being told some time ago that the interest is not tax deductible, because the land is not earning income.
Worth double checking.


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## GreatPig (11 June 2006)

I don't believe any of the other costs would be deductible either (rates, etc).

GP


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## crackaton (11 June 2006)

Yes I plan to build it is in a subdivision has power water etc. My intention is to set a tin garage as an abode while I build something bigger. Kind of like a rural escape!


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## krisbarry (11 June 2006)

You need a larger deposit as their is more risk involved in owning land, than a house and land.  You may also have building requirements placed on you by the council or by the developers, meaning that you may need to build a property on that land within a specified period of time eg 1 or 2 years.  That includes landscaping etc.

Buying land for short term investment at the moment is useless in this current environment of higher interest rates and de-valuing house prices, not unless you intend to purchase in specific pockets/suburbs in Darwin or Perth.

There is also no deductions in terms of taxation, so its usless to be paying a massive loan on a piece of land that is idle and not earning an income.

You will also not qualify for the First Home Owners Grant, due to it being land only.


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## Odduna (11 June 2006)

123enen said:
			
		

> Not much experience here- I remember being told some time ago that the interest is not tax deductible, because the land is not earning income.
> Worth double checking.







			
				GreatPig said:
			
		

> I don't believe any of the other costs would be deductible either (rates, etc).




Howdy, if the vacant land is purchased for future income producing purposes, you maybe able to claim tax deductions.

Check out TR 2004/4 on the ATO legal database.

Basically, if you take out necessary steps to make it income producing, you can make a claim. 

However, if its main residence the answer is no, although these items can be added to the cost base for cgt purposes in some cases.

If you are looking at it being used for future income producing purposes (ie rental property) get taxation advice from someone qualified, or write to ato for a private ruling to see if you can make a claim.


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## crackaton (11 June 2006)

Odduna said:
			
		

> Howdy, if the vacant land is purchased for future income producing purposes, you maybe able to claim tax deductions.
> 
> Check out TR 2004/4 on the ATO legal database.
> 
> ...





That's interesting. So what about buying some land to plant, lets say trees that can be harvested or exotic fruits etc?


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## sarahmeehan3 (11 June 2006)

Strongly suggest you go to the following website:
http://www.somersoft.com.au

Register

Its free

Enter the forum.

Everything and anything you want to know about property is in this forum.
Ask a question and you will get a response almost immediately.
Check out the following websites, also

1/ www.chrisbatten.com.au (Sydney)

2/ www.gatherumgoss.com ( Melbourne)

Regards

Sarah


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## crackaton (11 June 2006)

K thanks. Will probably move my questions over there.


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## cuttlefish (11 June 2006)

like stop-the-clock said - lvr's are probably the main difference - i.e bigger deposit usually required for land vs house+land depending on location (the banks have different lvr requirements for different categories of location - rural, cbd, regional etc.).  Servicing requirements are same as for a standard home loan as far as I recall.


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## Smurf1976 (12 June 2006)

crackaton said:
			
		

> Yes I plan to build it is in a subdivision has power water etc. My intention is to set a tin garage as an abode while I build something bigger. Kind of like a rural escape!



Be aware that the local council may have something to say about this. Depending on the area you may not be allowed to build anything other than a house and even then the council has a lot of say as to style etc and may even impose a minimum size for the house. Just building a garage without a house might not be allowed.

Personally I'm not keen on councils - they do too many pointless things IMO - but when it comes to building you have no real choice but to do as they say. CHECK what the local planning laws are BEFORE you buy the land.


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## crackaton (12 June 2006)

Thx smurf. Will look into in more depth. Maybe not such a good idea after all


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## Stan 101 (12 June 2006)

most banks will require a 20% deposit if the only security is the land you wish to purchase. If it's off a second mortage, you'll be fine with a lower or no deposit.

You can in fact claim expenses on vacant land if sold for a profit. You will incur CGT in that instance. In one obscure ruling you can even forgo the CGT. Check with ATO on all this.

IMHO vacant land is an excellent asset to be holding at the moment hence my reason to sell most of my share holdings in the recent months. Land appreciates, bricks and mortor on the other hand are a liability. That being said, it gives you somewhere to live and maybe a rental return. There are plenty of pockets of good quality land with coastal views to be had in the state of QLD. Crackaton, You in FNQ aren't you? 
If you can pick a good location, by the time you are ready to build, your valuation may have grown and will help with the house purchase.

Check with the local councils about rejuvenation plans for some regions..Some FNQ councils are about to spend big...




cheers,


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## Odduna (12 June 2006)

Stan 101 said:
			
		

> In one obscure ruling you can even forgo the CGT. Check with ATO on all this.




Would you be able to tell us the number of the ruling?

To be honest, never heard of being able to avoid CGT as an individual selling land. 

Only main exemption for CGT i am aware of if i is a pre-CGT asset or the main residence exemption.

Although small businesses have active asset CGT rollovers concessions.


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## Stan 101 (12 June 2006)

I'll check it up. I gave to an accountant and they shook their head and said "I'll get back to you on this."

I'll post it when I have it handy..

cheers,


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## CJ Wentworth (13 June 2006)

Lol. My settlement just went through last wednesday on my Block of land. The only thing I'd like to add is that while during owning the block (without it making any money) nothing is tax deductible.

Upon sale of the block, as long as you kept records, any costs involved with purchasing the block are tax deductible (including interest and loan approval, etc) and hence can be offset against any Capital Gains


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## crackaton (13 June 2006)

Stan 101 said:
			
		

> most banks will require a 20% deposit if the only security is the land you wish to purchase. If it's off a second mortage, you'll be fine with a lower or no deposit.
> 
> You can in fact claim expenses on vacant land if sold for a profit. You will incur CGT in that instance. In one obscure ruling you can even forgo the CGT. Check with ATO on all this.
> 
> ...





Yes I am, and the block I am looking at is about an acre with great views!! Thanks for the help!!


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## tech/a (13 June 2006)

*WARNING.*

I have seen property with no Power and No Water and no Sewer being pedelled very cheaply in FNQ,but not cheap enough when you find out the cost of having services hooked up!!

That was 4 yrs ago but be very wary.


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## dutchie (13 June 2006)

If purchasing vacant land as an investment then only buy quality blocks.

Since there is only capital gains to be make a profit then this is vital.

Don't buy the first block in a new 100 lot subdivision.

Buy one with ocean views or close to beach or close to transport or in a good suburb with limited vacant land or other attributes (position, position, position!). Even if you have to pay a little extra - pay it!

Buy a lot that can be subdivided or will take unit development.

Cheers


Dutchie


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## Prospector (13 June 2006)

dutchie said:
			
		

> If purchasing vacant land as an investment then only buy quality blocks.
> 
> Since there is only capital gains to be make a profit then this is vital.
> 
> ...




Have to agree with all of that!   Purchased a waterfront block in Hindmarsh Island, SA, just before the Bridge was completed - one of the last 10 blocks of about 70 available.  Has increased 150% in price in six years whereas street blocks haven't.  It is in our Super Fund so wont be sold until we turn at least 55 years and drawing down.

Have just finalised the contract on a River Front apartment at Newport Quays Port Adelaide - one of the last few apartments available in Stage 1 and the view cannot be built out - it also has a Marina Berth which will probably increase in value faster than the apartment.  This will be rented out for five years (not due for completion until Sept 07) for when we downsize.
Again, we paid more for the view and the berth than other apartments.


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## tech/a (13 June 2006)

Prospector.

I had a look at these myself.

My final feeling was that it was Multiplex making the $$s and was years ahead of its time for spec buying.So I didnt part with the $1.2 they were asking at the time.

Invested in land for developement in southern beaches.My veiw was there was more to be gained by my own developement than that of Multiplex.

Id be interested to know if people bought on spec then and now have on market for a quick return.Even this approach seemed risky as those on water front seemed full value with little upside in the forseeable future (5 yrs).

Still if you bought it for your own "Downsizing" and lifestyle then the $ value is of little consequence.


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## mit (13 June 2006)

One thing about buying land then building is that you save on stamp duty compared with buy a house on a block.

MIT


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## Prospector (13 June 2006)

Didnt quite part with the $1.2 million - quite a bit less than that for the apartments.  I think you must have looked at the Villas - they sold out in 12 hours.  It would be interesting to see if they will be valued more than that come settlement next year.

Once the development is actually visible, I think the values will soar because people can actually see it.  Unless of course a lot of the properties have been bought for total speculation and will be sold come September next year, when there may be a glut of them.  That is exactly what happened with Hindmarsh Island, as soon as the bridge was finished, (about a month after we bought it) the value went up overnight!

But like you say, we have bought it to eventually live in it, so there is no great benefit CGT wise.

Property is such a funny thing though.  A few years ago we bought a small shack on the lake at Clayton (near Goolwa) and paid just over $60,000 for a fully furnished (3 bedrooms) waterfrontage (lake) shack with a never to be built out 180 view of Lake Alexandrina.  A total lifestyle decision and our accountant said we needed to remember it was about lifestyle and was not an investment decision because it would cost us money.

Hmm, seven years later that shack is now worth well over $220,000!  Did a similar thing with our home - it was very run down (10 years of tenants) but classic tudor on a large block in an undiscovered suburb in Adelaide (although surrounded by the usual Eastern suburbs).  We had to have it valued for the loan for the Investment at Port Adelaide.  Lovely surprise that valuation, and while we had spent around $90k on upgrading, it has returned over $200K more than cost price plus renovations cost in just 3 years!  Trouble is, it is huge and it will be that property and Clayton that we will sell and 'downsize' when we move to Port Adelaide.

We have always wanted to live on the waterfront and had also looked at Bribie Island, but the prices for the quality development soared before we could get in.  And the infrastructure is a bit lacking.  Then we thought we could buy the block at Hindmarsh Isl and build on that, but while the summers are lovely the Winters are cold (although the block faces the right direction for protection) but this development fits our bill nicely.   The submarine contract and need for skilled engineers we hope will mean we will find tenants for the time before we want to move in!

Lsst week when I was there there were dolphins swimming near the development - cant get much better than that!

Never thought I would want to live at Ethelton though   (a joke for people who know Adelaide)


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