Construction finance and building under company/trust when land is PPOR

[FeFiFo]

Hi Guys, How easy it is to spend a day looking at this forum!
I would really appreciate your help and advice. I am a beginner investor with three IP's in my own name.

My husband and I are interested in a large block of land with a house which would suit a buy, reno, build, subdivide and sell. Likely build two dwellings.
We would buy this property as our PPR and utilise benefits as FHO in closing cost savings. However we can only afford a cash deposit for the property and closing costs. We can have a 90% loan with no LMI through CBA as I am a Doctor.
Renovation for PPOR will be done through personal loan or savings as we are planning on doing this over 18 months. We currently plan on selling all for cash gain.

1. To build, I understand we can get a loan based on the end anticipated value and so potentially not needing a cash deposit for this? Is this correct? Is this generally possible through the big banks or through other "niche" lenders?

2. Can this cover the costs for subdivision also?

3. Generally how much more are the interest rates for construction loans vs personal loans?

4. Once purchased the property in our own names, can the subdivision and/or construction be done through a company or trust.
Our aim would be for asset protection and minimizing CGT when selling project.

Many thanks for the information.
Fi

 

[Aaron_C]

1. Depends on your overall LVR etc but yes that's possible through most lenders.
2. Not directly.
3. I assume you mean constructions loans vs home loans (rather than personal unsecured loans). Same rates.
4. No it has to be done in the same name as the land owner. What you can do is buy it in a company/trust and then sell it 'off the plan' to yourself to save on stamp duty.

 

[Rolf Latham]

End value ie gross realisation value will be tough with cba Res I

Medico no lmi is now limited to personal names as well.

Ta

Rolf

 

[FeFiFo]

Thanks for your immediate reply Aaron!
1. In general sense, what sort of LVR based on end valuation of construction is normal?
4. To clarify your point:
Currently we want to purchase and live in the current property at the front and do a renovation. We would get a discount on the stamp duty as FHO.

However your point would be that the trust purchases the property, we rent out the unrenovated home. Then buy of the plan a unit and live in that once completed to meet requirements of FHO grant.. In this scenario we would get a first home owners discount and possibly the grant also (which applies to those who are building)?
That seems a little dodgy
It appears we will be paying two stamp duty's and in return possibly get the FHO grant, security/protection of asset & reduced CGT.

Would you be able to clarify - the potential savings of CGT if purchase in own name vs trust or company? If sell within 12 months of completion? (I understand this is a legal question)...

Thanks again.

 

[FeFiFo]

Thanks Rolf!
If we stayed with CBA for personal loan to purchase property would it be difficult to get a construction loan elsewhere?
Any suggestions who would be more willing of approving this?

As a general question also, we are currently going through a CBA home loan specialist which is a bit tedious and unhelpful. It is my understanding that brokers wouldn't be interested in us as clients because we plan to sell the property within 3 years? Therefore losing commission. Is this right? Obviously what we are planning on doing requires a bit more attention to detail and we want to avoid as much stress as possible.

Thanks again, Fi

 

[tobe]

Your plans re the FHO grant do seem dodgy. I'd let them go. Whats the saying about investing for tax advantages? Can this apply to stamp duty advantages also?

I would personally divorce my investments with my PPOR. I know a lot of people do well by upgrading their PPOR, renovating etc, but I dont see how living through a renovation and moving every couple of years, with the associated costs can be worth paying a little less CGT.

Just live somewhere nice, and invest somewhere sensible. leverage off the growth in both properties to purchase more, and avoid selling and triggering CGT.

 

[Aaron_C]

Thanks for your immediate reply Aaron!
1. In general sense, what sort of LVR based on end valuation of construction is normal?

Depends....up to 90-95%. Being a doctor your income is obviously OK so you can go to that high leverage if need be.

4. To clarify your point:
Currently we want to purchase and live in the current property at the front and do a renovation. We would get a discount on the stamp duty as FHO.

You can't have your cake and eat it too. If you buy in a personal name off the bat to get the SD discount, then you can't later claim asset protection unless you then pay stamp duty again when you sell.

However your point would be that the trust purchases the property, we rent out the unrenovated home. Then buy of the plan a unit and live in that once completed to meet requirements of FHO grant.. In this scenario we would get a first home owners discount and possibly the grant also (which applies to those who are building)?
That seems a little dodgy

Yes that is right. It's not dodgy at all as long as you pay full market value and follow the requirements. It's just being smart.

It appears we will be paying two stamp duty's and in return possibly get the FHO grant, security/protection of asset & reduced CGT.

Correct. However, stamp duty on the second purchase would be a lot less due to it being charged on land value only as it is an OTP sale.

Would you be able to clarify - the potential savings of CGT if purchase in own name vs trust or company? If sell within 12 months of completion? (I understand this is a legal question)...

I'm happy to run through the numbers for you but hard to do it on a private forum

 

[tobe]

You specialist is most likely remunerated in a very similar way to a broker that thier bonus would be affected if you discharge the loan within 12 or 18 months.

Most good brokers would understand that while you sell this particular property within 3 years, you will then take another loan for a diferent property. Its the relationship with the client the broker is after, not the particular life of that particular loan.

 

[Aaron_C]

As a general question also, we are currently going through a CBA home loan specialist which is a bit tedious and unhelpful. It is my understanding that brokers wouldn't be interested in us as clients because we plan to sell the property within 3 years? Therefore losing commission. Is this right?i

Broker commissions only get clawed back if the property is sold within 2 years. The only loss from a sale after 3 years would be trailing commission, so I don't think that's an impediment to using a broker.

 

[Terry_w]

Hi Guys, How easy it is to spend a day looking at this forum!
I would really appreciate your help and advice. I am a beginner investor with three IP's in my own name.

My husband and I are interested in a large block of land with a house which would suit a buy, reno, build, subdivide and sell. Likely build two dwellings.
We would buy this property as our PPR and utilise benefits as FHO in closing cost savings. However we can only afford a cash deposit for the property and closing costs. We can have a 90% loan with no LMI through CBA as I am a Doctor.
Renovation for PPOR will be done through personal loan or savings as we are planning on doing this over 18 months. We currently plan on selling all for cash gain.

1. To build, I understand we can get a loan based on the end anticipated value and so potentially not needing a cash deposit for this? Is this correct? Is this generally possible through the big banks or through other "niche" lenders?

2. Can this cover the costs for subdivision also?

3. Generally how much more are the interest rates for construction loans vs personal loans?

4. Once purchased the property in our own names, can the subdivision and/or construction be done through a company or trust.
Our aim would be for asset protection and minimizing CGT when selling project.

Many thanks for the information.
Fi

There is no reason why a company or a trustee could not do the construction or own the building, i.e. separate to the land. this is happens.

But it may be difficult to achieve in practice with residential finance.

there is a way to avoid double stamp duty if you want to have one owner after sub-division different to the owner before. But this would probably involve you not being able to get the FHOG

 

[Rolf Latham]

Broker commissions only get clawed back if the property is sold within 2 years. The only loss from a sale after 3 years would be trailing commission, so I don't think that's an impediment to using a broker.

Having said that, many transactions for a Business based broker with staff and premises etc, that "ONLY" loss, is pretty much the primary income.

For a sole operator its obviously a different outcome.

Most brokers whether sole operator or business based, would look at something such as this as a foot in the door,and not just look at the current transaction.

Right now though,I believe you need a solicitor and accountant much more than you need a broker .

ta
rolf

 

[FeFiFo]

Thanks for all of your advice guys. Its been really helpful. Fi