A tricky one for all ..............

From: Michael Croft


OK, so I want to buy a rural (1a) property in NSW 200 acres (80 ha) 20 minutes from a CBD. Cost $500k and has house and sheds. Now without x-coll and using a prime lender (6% rate or lower)can you do it on 90% LVR? How about 80% LVR? Serviceability will not be an issue.

Depends on how good your broker is but I would like to hear any/all creative suggestions. No wrapping ain't possible neither is a lease option as I am buying it for me ;^) Yes a sea change is on the way.

A reno to add about $80k with a $10k spend is an option and will happen. So value at settlement $580k and $450k loan required. The property will be used for 'rural residential' but will be officially/technically/zoned rural.

This is not a hypothetical, and rural is not my area of expertise so all and any help appreciated, and I haven't run this past my advisers yet. Rural 1a usually carries LVRs as low as 50%, with 60% being possible or so I hear. Of course I could x-coll something and make life easier but would prefer not to.

Michael Croft
"The best parachute folders are those who jump themselves."
 
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Reply: 1
From: Land Holdings


Michael,

So this one isn't an investment? Can't you free up some money from other investments in a LOC and borrow to buy this one or perhaps not. Why not buy it as an investment with loose change if you like from a large LOC (is this sounding ridiculous?)

I can't imagine spending that much money on myself so I'm going to give in. But that is pretty cool. Have you given much thought to going rural? It's a lot of work to maintain such a huge outlay of land - burn offs and what have you. I'd like to hear how it goes. I'd love to live on a 10 acre lot (4 hectares would be my limit as far as maintenance and everything would be concerned.)

Are you just going to live there or grow stuff to sell as well? In any case good luck to you!

LH.
 
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Reply: 2
From: Anonymous


are there any primary producer type tax breaks available? I know that certain barristers (some of whom are now judges) who have been "Queen street" or "Pitt street" farmers with poor struggling loss making farms for decades and have saved huge slabs of cash as a result...
 
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Reply: 2.1
From: The Wife


still some primary producer tax benefits available, but not many, government has heavily regulated now.

TW
~Life is a daring adventure, or nothing at all~
 
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Reply: 2.1.1
From: James Spry


It's not quite a wrap but as far as I'm aware farms have been bought and sold using vendor financing for quite a while in Australia (it's just taken a while for city slickers to catch on.) Would it be possible to find a vendor willing to carry a mortgage? or even a second mortgage on the balance? (they might be more flexible on terms than a bank?)
Perhaps you could try asking on some rural web sites what the options are... Other than that I'm out of ideas.
Sorry I couldn't be more helpful,

Jim Jim the monkey boy
 
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Reply: 2.1.1.1
From: Michael Croft


Thanks Guys, I tried vendor finance first up but it was a no go at 7%, even a 50 % second mortgage wasn't tempting, so I gave up on that idea.
May go down the rural producer path at a later date for the tax breaks. I'll also check out the rural sites and see if they can shed some light.
Keep em coming guys, thanks.

Michael Croft
"The best parachute folders are those who jump themselves."
 
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Reply: 2.1.1.1.1
From: Sergey Golovin


I thought that property it self over $500K (no produce) or land generating $25K(?) worth of produce are classified for tax exemptions?


Serge.
 
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Reply: 2.1.1.1.1.1
From: Les .



G'day Michael,

Could this one work along the lines of "don't buy a piece of the pie, buy the whole pie and cut it up, and sell off the pieces". I read this in Kiyosaki.

In a nutshell, say you're wanting 200 acres, go find 500 acres, then sell off 2 x 150 acres to others, and keep 200 for yourself. This way, others are providing deposits and mortgages for "their share" that can effectively get you into YOUR 200 acres for minimal cost.

Or, do you really want 200 acres? Perhaps 100 is enough, and 2 x 50 acres sold off to others can provide you with enough of the "readies" to handle all of your deposit, and maybe a goodly part of your mortgage as well .....

What do you think? Could something like this work for you?

Regards,

Les


- "Eschew Obfuscation" - ;^)
 
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Reply: 2.1.1.1.1.1.1
From: Anony Mouse


Michael
You would need to consider a number of factors.
Is there electricity, telephone, town water available if so may be able to borrow to 80%.
If you don't intend to run as a primary producer, how to service?
If serviceability is a problem , you will only be able to borrow against security of property, if you dont wish to x-collateralise.
From the taxation angle, to be classified as a primary producer is a question of fact, judicial code for " its often hard to tell"
Having just gone down this road myself, but I used a trust structure,which is more complex, might I suggest two avenues which I found useful, talk to as many rural RE agents and rural tax agents as you can, run as many scenarios past them as you can think up and only then think about the best method of financing.

"A government that robs Peter to pay Paul can always count on the support of Paul."
Of course, Paul's support is obvious, but it is equally obvious that to rob from Peter to pay Paul will make Peter
very, very angry.
My question is this: "How can you run a good government with a sore Peter?"
 
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Reply: 3
From: Rolf Latham


Hi Michael

Every Time I have said cant be done someone proves me wrong so here goes - you may benefit from that :eek:)

It cant be done either at 80 nor 90, simply because these things are difficult to flog, they represent a poor quality security generally speaking.

Ta

Rolf
 
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Reply: 3.1
From: Rick Gibson


Michael,

The subdivision idea is a great one. I read an article once about the owner of a prominent national cafe chain who used the above method to great effect at Airlie Beach.

He brought a few hundred acres, subdivided off 90% of it and was left with an absolute incredible house on the cliff overlooking airlie beach for free, about 3-4m worth I think.

Rick
 
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Reply: 3.1.1
From: Michael Croft


Thanks all,

Subdivision is a good idea but not possible as there is a minimum area set by council, a formula which involves amalgamation, averaging and other stuff. The minimum sub divisional area is 200 acres.

It would appear that 80% is possible under certain circumstances with the big 4 and other major lenders,; you just have to think outside the box.

Some good ideas came via email: I will probably set up a company (maybe a trust) to purchase the property and then rent from the trust to show income other than primary producer stuff (which will be a bonus). It has a separate office so one of my businesses will rent that. All in all the property will produce a modest $600 pw, most of which will be tax effective.

Have to run it all past my accountant and there are a few subtle twists to add yet ;^)

Michael Croft
"The best parachute folders are those who jump themselves."
 
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Reply: 3.1.1.1
From: Sergey Golovin


Michael,

It would be similar idea but with superannuation trust/account?
Superannuation trust buys it and you rent it from it. 15% tax.

Your rent cheque (from your family) + compulsory contribution to superannuation cheque (from you and from your family) + rent cheque from your business (your business/office does need space to work from as well) = looks like healthy weekly repayment towards your loan (sorry, not yours, superannuation trust loan).

Serge.
 
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Reply: 3.1.1.1.1
From: Michael Croft


Hi Sergey,

From memory a superfund/trust can't borrow to invest, but I'll check it out as there may be a variation on that theme or a way around the issue.

Thanks,

Michael Croft
"The best parachute folders are those who jump themselves."
 
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Reply: 3.1.1.1.1.1
From: Sergey Golovin


Michael,

I think that if super trust has/owes co. and co. does all transactions on behalf of the trust and just happened that you’re the one to be in control of the other co. which negotiated all those matters on your behalf?

Let say you do have Shuttle Enterprise Pty with idea to develop new shuttle engine and looking for place to set up an office and test lab in vast spaces of country side.
It happened that way that your super fund Canberra Circle Supper Fund has company Inflammable Rocket Fuel Pty. more then happy to negotiate your rental arrangements...

Serge.
 
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Reply: 3.1.1.1.1.2
From: Michael G


Hmmm,

What if your family trust bought it (maybe by borrowing money of you personally even, then vendor financed the property to your super then your super leased it out to your company?

Using Rick's idea, you do a no-interest terms to the super (so there's no income or capital gain), then the income from the leases are held in your super?

Layer, upper layer, upper layer !

Sorry, it doesnt fix the LVR for the intial purchase, but may make it a little more tax effective.

Michael G.
 
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