Quick Q: Can plain old land be used as equity?

[MichaelMik]

Hello my fellow somersoftarians, I sincerely hope everyone is doing exceptionally well

I have recently purchased a 5 acre block of land in Captains flat, NSW. I bought it off a family member for a very good deal and bought it outright 100%. My quick question is that I thought I might be able to use up to 80% of the equity (valuation is around 200k -250k) to use as deposits for other IPs and perhaps even cheekily finance a (used) new car and motorbike, maybe even a nice watch, all through this land.

The block is vacant so produces no income presently and costs around $1300 a year in rates and what not, to hold. The only reason I am asking is I was talking to one of my mates parents that I believe are very experienced investors and they said I would have to actually build a house on this 5 acre block before I could borrow against it. Which really surprised me and puts a bit of a spanner in the works.

Now obviously my plan is to in the next few years eventually build on this block, and perhaps even make it my PPOR (I quite like the peace and quiet that one finds in the country) or just rent it out for CF+ but I am always on the prowl (AKA I have a serious addiction for looking at property) for other quality investments and feel it is an awesome time to build a substantial property portfolio (as substantial as servicing will allow ) and leave this building a house from scratch for later. I was thinking it would be lovely to get some already established and tenanted property. Providing this 200 odd k equity can be used for deposits, for this purpose. Would love to know what do you guys think of this strategy as well?

So as long as I can use this equity, I'd really love to get into the neutral/positively geared property ASAP and hopefully in a year or two.. Maybe five.. I could be a big shot/major contributor for this sweet forum and could give advice and answer questions, instead of the one just asking these dumb Qs haha!

Thanks in advance you extremely intelligent bunch.

Cheers

Michael

 

[Terry_w]

Your title shows a grammatically incorrect usage of the term equity.

You can borrow against the land, yes - subject to lending criteria.

 

[Corey Batt]

No issues with using vacant land as security, so long as serviceability permits.

 

[Peter_Tersteeg]

Did something exactly like this before Christmas. The client owned some land outright and wanted to buy a new home.

Loan 1 was to access the equity in the land which became funds for the deposit and purchase costs.

Loan 2 was directly against the purchase of the new home.

The two were done with different banks, in this case there were several good reasons for this decision. There is also still some equity in the land (we didn't take it all) which means it can be developed in the future if that is suitable.

It's not a very difficult scenario at all.

 

[MichaelMik]

That's bloody beautiful too know! Thank you so much for the extraordinarily swift response and trust you mortgage brokers too know all I really appreciate it.

But ruthlessly, what do you guys think is the better option. Build for CF+ or start expanding the portfolio as far and wide as possible and build this house later on. Tis a bit of a dilemma that has been bugging me.. First world problems I know

Just out of curiosity how does the mortgage broking career treat you? I would be very interested to know what one makes on average in a year, as it is a profession I would be very keen to pursue. Hope you don't mind the boldness of this question.. Thank goodness for anonymity hehe

 

[Peter_Tersteeg]

My 'ruthless' opinion is that capital gains makes people far more wealthy than cash flow.

Cash flow however is necessary however, because it allows you to hold your portfolio whilst it grows in value. It's also dictated how large you can build your portfolio.

The weakness of capital gains is that you're making a prediction that it will happen. Over the long term this tends to hold up fairly well, but short to medium term it can be unpredictable.

The right answer of course is to get both, but the practical answer is to find a balance that suits your circumstances.


It's been a while since I saw anything about brokers income, but it suggested the figure was about $70k per annum for the "average" broker. Interestingly this was about the same as the average Australian income at the time. I don't recall if this was before or after costs.

 

[Redom]

I suspect the average mortgage broker has been higher over the last couple years with incredible credit growth figures (10%+ YoY).

Although through the cycle, that 70k figure sounds about right. I'd guess the average volume a broker writes is around $10-$15 mill through all cycles. Thats about 70-100k in upfront income, with a trialing income too that builds up over time. Then theres costs.

Brokers on here (at least the reputable ones) would easily do significantly better though. The good ones do well and are typically in demand. I suspect theyll work very very hard to earn that sort of income though. Theres a fair bit of healthy info in the 'becoming a mortgage broker' threads that pop up every few months.

Cheers,
Redom

 

[albanga]

When you break it down a lot of people's equity is actually in the land anyway, regardless if a house sits atop it. There are so many old homes that would be valued at 50-100k but total value 10* that amount. My mate just got his richmond home valued at 800k land/100k house and it's a beautiful old weatherboard.

Also just a quick note what your suggesting above would cause contamination of your loan so please get one of the brokers on here to help you when doing this. Mixing the purpose of your equity release (some for investing and some for personal use) will cost you a lot of money in the future.

 

[IrishPete]

Hello my fellow somersoftarians, I sincerely hope everyone is doing exceptionally well

I have recently purchased a 5 acre block of land in Captains flat, NSW. I bought it off a family member for a very good deal and bought it outright 100%. My quick question is that I thought I might be able to use up to 80% of the equity (valuation is around 200k -250k) to use as deposits for other IPs and perhaps even cheekily finance a (used) new car and motorbike, maybe even a nice watch, all through this land.

The block is vacant so produces no income presently and costs around $1300 a year in rates and what not, to hold. The only reason I am asking is I was talking to one of my mates parents that I believe are very experienced investors and they said I would have to actually build a house on this 5 acre block before I could borrow against it. Which really surprised me and puts a bit of a spanner in the works.

Now obviously my plan is to in the next few years eventually build on this block, and perhaps even make it my PPOR (I quite like the peace and quiet that one finds in the country) or just rent it out for CF+ but I am always on the prowl (AKA I have a serious addiction for looking at property) for other quality investments and feel it is an awesome time to build a substantial property portfolio (as substantial as servicing will allow ) and leave this building a house from scratch for later. I was thinking it would be lovely to get some already established and tenanted property. Providing this 200 odd k equity can be used for deposits, for this purpose. Would love to know what do you guys think of this strategy as well?

So as long as I can use this equity, I'd really love to get into the neutral/positively geared property ASAP and hopefully in a year or two.. Maybe five.. I could be a big shot/major contributor for this sweet forum and could give advice and answer questions, instead of the one just asking these dumb Qs haha!

Thanks in advance you extremely intelligent bunch.

Cheers

Michael

Curious as to where your land is Michael. A 5 acre block in the village zone would be subdividable into many blocks (terrain permitting) as the minimum lot size is only 450sqm, and potentially worth rather a lot more than your estimate.

5 acres outside the village zone would generally not have a building entitlement, and would be worth very little. It may have a historic building entitlement, but I think your valuation would still be "generous".

Peter (a Palerang Councillor)

 

[MichaelMik]

Thanks very much everyone, eternally grateful!

Also Albanga that's very interesting about loan contamination, I did not realise mixing business with pleasure would make this occur. I shall look into this before I make any rash decisions

G'day Peter, it's the block looking over the old railway house, I shall PM you the actual address. I would be very interested and appreciative if you could let me know what's permissable on this block. Thanks very much, it would be pretty outrageously amazing if I could subdivide!

Cheers everyone!

 

[Colin Rice]

Just out of curiosity how does the mortgage broking career treat you? I would be very interested to know what one makes on average in a year, as it is a profession I would be very keen to pursue. Hope you don't mind the boldness of this question.. Thank goodness for anonymity hehe

The average is 70k per annum. An above average one can make 200k+ per annum.

80/20 rule applies. 20% do 80% of the loans written.

67% don't last past the first 2 years and the 33% who do go past two years most would have leads spoon fed to them via various sources depending on the group they are associated with. They probably wouldnt take on newbies though unless you have a lending background via a bank.

Odds are against you but if you are able to earn sweet FA for the first couple of years and not borrow money for about 4-5 years then go for it.