Buying farm land - banks all want to use other property as security?

[beaver700]

Hi

A friend of mine is looking at purchasing farm land. He has a deposit of 60%. He also owns another property outright with $550k. He needs the extra 40% from a bank. All banks seems to want to use his existing property as security!
I am a reasonably inexperienced with finance, and was wondering why the banks want to do this (considering he has such a high deposit?).
I have three IP's of my own, and cannot explain it
Any help is much appreciated!

Thanks

 

[jonmardell]

Hi

A friend of mine is looking at purchasing farm land. He has a deposit of 60%. He also owns another property outright with $550k. He needs the extra 40% from a bank. All banks seems to want to use his existing property as security!
I am a reasonably inexperienced with finance, and was wondering why the banks want to do this (considering he has such a high deposit?).
I have three IP's of my own, and cannot explain it
Any help is much appreciated!

Thanks

maybe the new property he is buying is not acceptable security to the bank? The other property he owns is it residential or farm land as well?

 

[Marty McDonald]

^^^^^^^^^^^^^^^^^
What Jon said.

 

[Rolf Latham]

Hi

A friend of mine is looking at purchasing farm land. He has a deposit of 60%. He also owns another property outright with $550k. He needs the extra 40% from a bank. All banks seems to want to use his existing property as security!
I am a reasonably inexperienced with finance, and was wondering why the banks want to do this (considering he has such a high deposit?).
I have three IP's of my own, and cannot explain it
Any help is much appreciated!

Thanks

Hi Beaver

depending on size and a bunch of other things higher LVRs and near resi rates are achievable

the primary reason the lenders dont want agri land is that is can be damn hard to move on if the loan goes bad.


ta
rolf

 

[beaver700]

Hi

Thanks to everyone for your replies

The property he owns is farm land as well. It has a house on it, and that is where he lives.

He is very conservative financially and doesnt want to use the property he owns outright as security.

Are there such things as brokers who specialise in farm loans?

Sorry for any stupid questions
Regards

 

[Rolf Latham]

Hi

Thanks to everyone for your replies

The property he owns is farm land as well. It has a house on it, and that is where he lives.

He is very conservative financially and doesnt want to use the property he owns outright as security.

Are there such things as brokers who specialise in farm loans?

Sorry for any stupid questions
Regards

If there is other income ( off farm) and this puppy is mainly a hobby farm of less than 400 or so acres, should be doable.

ta
rolf

 

[beaver700]

Thanks

Yes both him and partner have secure 'off farm' jobs (combined about $100000/year). Also, the farm is less than 400 acres and is more of a hobby farm.

Cheers

 

[Marty McDonald]

As Rolf said a few residential lenders will do up to around 150 acres and possibly a bit more.

Where you will struggle is if the land is being used as a working farm or in lender speak is "income producing". A few cows is OK but if it's serious agriculture it has to be done under an agri business loan set up.

 

[Aaron_C]

'Income producing' means commercial security and corresponding lower LVR and higher rates.

 

[Dazz]

'Income producing' means commercial security and corresponding lower LVR and higher rates.

Exactly right Aaron.

If it's income producing, that would mean higher risk as you've got more money in your pocket, so it's sensible to lower the LVR and charge higher rates.

If I was a Bank, that would make perfect sense.

If it's just a little hobby farm with no appreciable income being earnt, then sure, that would mean lower risk, and therefore able to lend a much higher LVR and charge the borrower lower rates.

Only in the Banking world....

 

[Pa1nter]

IF he wants it bad enough I would get a LOC on his owned property and use that cash to buy the property outright,possibly getting it cheaper as well being a cash buyer.

This gives him the deed to at least one of his properties,the other way the bank has both deeds and has him by the balls.

 

[beaver700]

Cheers for all the replies! I will let you know of the outcome