LVR - Rural Lending

For a rural property purchase of $2Mil, how much cash am I going to have to come up with?  Self employed, good profitable trading history, great lending history.

S

Depends on the size of the acreage but probably around 65% max lvr assuming full doc.

Richard Taylor - richard@tayloredfinancialsolutions.com.au Tel: 07 3720 1888
Residential Mortgage Broker providing structured home loan advice for investors and owner occupiers all over Australia.
Thinking of buying your next investment property using a SMSF. Email me for a copy of my SMSF EBook.

Hi S,

ANZ used to go to 65% LVR on freehold property and 60% on leasehold.  ie up until sept 2009 at least, not sure if things have changed.  I work for another lender and we go to 60% at best.  Suncorp I think may go as high as 70% but I'm guessing you are close enough to check that one out yourself.  This is in regards to land.

Most lenders will also offer you a stock mortgage, but generally only over stock pastured on land they already hold the mortgage on.  Stock mortgages are generally low value, ie the bank assigns a base value per head and then only lends 30-40% on that.  Simple reason being that no bank wants to restrict your ability to buy and sell stock or leave you hanging in the event that there is a temporary crash in the market, or redo the paperwork everytime you sell some steers.  

So working on your 60% LVR against land value of $2mln you have $1.2mln

If I assume a land  purchase cost of $3000 per beast area ( which is likely under the market, depending on where the property is) then the property should run about  666 adult cattle, probably less. My employer would extend another $60k of debt being 666 head *$300*30%.  Seems stingy but as mentioned it protects your flexibility.

Giving you total borrowing capacity of $1.26mln.

From this you buy the property, the cattle and hold back some reserves for working capital to tide you over until your cattle sales start rolling through and what ever budget you might need to subdivide.

I have no idea of your start up position but lending is basically a function of Net Asset Value/equity/LVR and cashflow.  If you can show strong equity then you have a better chance of getting finance with a tight cashflow over the first couple of years. 

If you have a strong cashflow but weak equity it is much harder to obtain finance, because cashflow esp in agri can be quite volatile and weak equity means that the bank is likely to lose money on their investment if things really go pear shaped. A guarantee  supported by property or a cash deposit from another individual with surplus equity is reasonably common and could help get you across the line.
 
If for example your guarantor placed net assets valued at $2mln behind the guarantee  then you could borrow 100% of the purchase price. (not realistic as your cashflow would likely bring you undone on the 100% lend).  But you would really want to have confidence in your ability and your cashflow to ensure that you never put that guarantor in a postion where they had to bail you out by giving up their cash/asset.

If you are weak on both fronts, then you are perhaps not quite ready to roll yet.

As to the subdivision, obviously this can be quite lucrative if you are able to turn rural land to lifestyle land.  How it would be viewed would depend on the cashflow effect both short and long term.  ie can you afford the development and holding costs and for how long can you carry it? once that land is sold can the remaining land support the remaining debt?

This is a bit of ramble but hope it helps. Make sure you check it out thoroughly with whatever lender you choose and take the time to read the documents thoroughly. 

Cheers

Rav

Hate to say the days of Anz doing anything rural have well and truly been and gone.

Richard Taylor - richard@tayloredfinancialsolutions.com.au Tel: 07 3720 1888
Residential Mortgage Broker providing structured home loan advice for investors and owner occupiers all over Australia.
Thinking of buying your next investment property using a SMSF. Email me for a copy of my SMSF EBook.

Depends on your market Richard.  Hobby farms certainly a hard sell. 

I woudn't say ANZ is the best choice, for a client, but they are still in the agri space and now that they have bought Landmark book certainly have sizeable market share. The quality of the book might be looking a little sadder though.

They have agri specialists in most regional centres these days.  I work for a competitor so I am stating facts rather than endorsing them.

Wasnt disagreeing that they wont finance any deal but meant you can forget them as far as competiveness in respect of rate and lvr is concerned.

Have done some really large rural deals recently 100 AC + and Anz have never even been close to the party

Richard Taylor - richard@tayloredfinancialsolutions.com.au Tel: 07 3720 1888
Residential Mortgage Broker providing structured home loan advice for investors and owner occupiers all over Australia.
Thinking of buying your next investment property using a SMSF. Email me for a copy of my SMSF EBook.

Thanks  both for the comment.

I wouldn't call 100ac plus a really large rural deal, where I live, entry level is 10000 acres.  The big places are 350000 acres.  I've worked on a place that was 2000000 acres.

I am talking true agri lending and it was nice to hear from someone who seems to know this particular sector quite well. 

Best to bide my time a little longer, I think.  The tighter lvr coupled with the end of the drought and drought subsidy may see some sort of price correction in agri, I hope.  There's lots of people like us who made a plan 10 years ago to build up sufficient assets to get into farming or some sort, and we've met the goal.  Thing is the price of land has tripled and quadrupled during the drought - insane policy, and we don't have a hope in hell now of getting in.

Yet, I see places sitting on the market for quite a while.  Seller expectations have not adjusted and anyone who doesn't HAVE to sell is still waiting for those big $.  The big $ are just not there.  Those already in the market know that it is at the top, those not in the market can't afford to get in unless  they have significant other assets.  Those with significant other assets know greater ROI is available elsewhere.

We'll wait.  Thanks for the replies.
S

S

Try NAB agri dept found them be fairly helpful at the moment.

Richard Taylor - richard@tayloredfinancialsolutions.com.au Tel: 07 3720 1888
Residential Mortgage Broker providing structured home loan advice for investors and owner occupiers all over Australia.
Thinking of buying your next investment property using a SMSF. Email me for a copy of my SMSF EBook.

Thanks Richard, we bank with nab at the moment, and have a business banking manager, so that is good to hear.  nab have always been pretty good to us actually.  The one time they turned us down it turned out to be just as well.

cheers
S