risks of getting loan for land and house separately

[woodridge]

Hi

Rather than buying a house and land package, what are the risks of buying a block of land with say a 90% lend and then either soon or later on contracting with a builder to build the house, with a 90% construction loan? This would be for investment property.

Do valuations work out better for H&L package?

Is 90% on both a land loan and independent construction loan generally possible?

Do you need more of a deposit to do a separate independent construction loan, than if through H&L?

Is there generally any difference in interest rates?

Thankyou.

 

[sash]

Already doing this in Perth. I ways structure as a H&L.

I do buy the land separately and get a builder to quote for house separately.

90% H&L loans are a no brainer these are what I am doing for 305-316k...with 10% deposit + plus legals/stamps.

The valuation will still be the total cost...but if done correctly in Perth you make a 40-80k profit. Some banks will charge more for a building loans about 0.1 to 0.25% more.

Hi

Rather than buying a house and land package, what are the risks of buying a block of land with say a 90% lend and then either soon or later on contracting with a builder to build the house, with a 90% construction loan? This would be for investment property.

Do valuations work out better for H&L package?

Is 90% on both a land loan and independent construction loan generally possible?

Do you need more of a deposit to do a separate independent construction loan, than if through H&L?

Is there generally any difference in interest rates?

Thankyou.

 

[woodridge]

ok thanks, how exactly does it work to get a H&L then? say im looking at a block which i buy through the developer. then do i have to get a builder contract to submit to the bank for funding at the same time?

 

[Rolf Latham]

Vals

Depending on where you buy, you could end up with a block of dirt that you cant build on .

Less of an issue if you have a bunch of extra cash to make up the shortfall, but in my experience, val of the finished product vs available resales ( often lower than land and build cost) make for fun

ta
rolf

 

[Brady]

As long as you do your DD you should be fine.

Make sure you aren't over paying for the land, just recently I've had a valuer value some land at contract price because it was close to compareable. But then when it came time to build, they said build costs were within industry standards but land costs they overpaid. Extremely frustrating and very wrong in my mind as it was the same valuation company for the land as the build.

But what you need to keep in mind in compareable end products. What you're building need to be to the same or higher quality then compareable sales in the area with your total build costs + land under their sale value.

 

[tobe]

I always recomend not buying the land seperately. My background is almost exclusively constrcution loans for the past 7 years or so.

the drawback are numerous, and fairly catastrophic. the only real risk mitigator is having a great lump of cash.

1. val shortfall. if this happens after you have already purchased the land, your stuck with the land, and you have most likely already parted with 5% for the build too. At best you can arrange a new build contract at some extra cost which the valuer may like better. At worst you cant complete the project and are sued by the builder.
2. site costs more than expected. if you havent got an actual contract (not a soil test, not engineering, a CONTRACT) before you buy, you may well be surprised at how much it costs to stick your particular house on your land. Soil test may denote a particular type of slab, however when your particular house is sited, it may have to be on a certain part of the block (for instance if due to covenants you can only place the house in a partular unlevel corner of the block etc) site costs can run to several thousands of dollars, these are dollars that are essentially wasted, valuers dont account for them, and the next buyer certainly wont.
3. change of circumstances. Like OTP, leaving the purchase half finished opens you to risks your personal details, or the property markets, or the banks lending policies will change between land purchase and construction, again leaving you stuck with a land loan without income, or the expence of changing builders/lender/circumstances etc.



In my experience people only want to purchase the land first for two reasons.

They cant afford the house yet, and expect a capital gain while they 'save' a further deposit etc. It is extrememly rare to see capital gain in developer blocks in the first 3 years. Extrememly rare. (note the developer might be selling the next release at a premium, but your block's valuer wont recognise much of a capital gain)
Or, they have been convinced the market is overheating, and they dont have time to arrange a building contract before the land contract finance expires. Its a 'quick, cheap' sale. This second option is the most dangerous. The heat is on for this 'cheap' block, because everyone else who has tried to buy it has had a builder quote ginormous site costs. Steer clear.

Dont be lazy, get the build contract organised before the land finance expires.

NB, I dont mean buy a 'package' of both from either the builder or developer, I mean organise two seperate contracts off two seperate people/orgainisations timed to coincide.

 

[westminster]

Hi

Rather than buying a house and land package, what are the risks of buying a block of land with say a 90% lend and then either soon or later on contracting with a builder to build the house, with a 90% construction loan? This would be for investment property.

Do valuations work out better for H&L package?

Is 90% on both a land loan and independent construction loan generally possible?

Do you need more of a deposit to do a separate independent construction loan, than if through H&L?

Is there generally any difference in interest rates?

Thankyou.

If you want to choose your own builder then make sure the settlement date is long enough for you to enter into a HIA contract with a builder so that the bank can then lend based on the land AND HIA contract.

This can be easy isn if titles aren't ready, if titles are ready seek at least a 6wk finance clause to give builder 3 weeks to quote and do plans for bank. You may need longer if you haven't chosen builder or your builder may need longer than 3 weeks.

 

[SB25]

Hi all,

To piggyback on this, what would be the ideal structure for someone to purchase a block of land now and then 6 - 12 months down the track refinance and start looking to build?

We are based o/s and have our eye on a block of land in SEQ which upon our return we would look to build our first house on. Is a refinance/redraw under the initial loan for building down the track a likely possibility, and are banks generally accommodating of such things?

Given lack of available supply in the area we're looking at I am quietly confident that there won't be a huge amount of comparable stock flooding the market anytime soon.

Thanks in advance
Sam

 

[sash]

Spot on ...I used a bank where they process and H&L package and will not extend funds for land purchase till council approval is given.

Ensure that I keep the developers abreast of what I am doing...and it works well for me.

Under no circumstances will I settle on land without a costed development. This is a recipe for disaster and could result in holder an asset with not cash flow.

Most developers are reasonable....they don't want to pull the land from you as they will have to start the whole process again with a new purchaser. Very few people will buy land outright.

If you want to choose your own builder then make sure the settlement date is long enough for you to enter into a HIA contract with a builder so that the bank can then lend based on the land AND HIA contract.

This can be easy isn if titles aren't ready, if titles are ready seek at least a 6wk finance clause to give builder 3 weeks to quote and do plans for bank. You may need longer if you haven't chosen builder or your builder may need longer than 3 weeks.

 

[Aaron_C]

Main issue is valuation and to a lesser extent borrower risk (i.e. losing your job halfway through).

 

[sash]

Spot one.....DD needs to be solid....

Main issue is valuation and to a lesser extent borrower risk (i.e. losing your job halfway through).

 

[tobe]

Hi all,

To piggyback on this, what would be the ideal structure for someone to purchase a block of land now and then 6 - 12 months down the track refinance and start looking to build?

We are based o/s and have our eye on a block of land in SEQ which upon our return we would look to build our first house on. Is a refinance/redraw under the initial loan for building down the track a likely possibility, and are banks generally accommodating of such things?

Given lack of available supply in the area we're looking at I am quietly confident that there won't be a huge amount of comparable stock flooding the market anytime soon.

Thanks in advance
Sam

If you have to do it this way, then purchase the land first and then do the build later. Do not count on the land appreciating in value, in fact count on it perhaps depreciating. Valuation on new builds are tricky, and depend alot on the existing stock. ie if yours is a modern house in an old suburb, you may not acheive the cost of the build in your valuation.