i have a few properties and now i am about to buy some land what chances will i have to get this loan ,because no income will be coming from it ,so i dont know how i will go can ,any one have any ideas on this
Hi,
I’m not sure about this since I have never purchased vacant land as an investment.
I guess you’d have to ring around various lenders to see what is the best deal you could get.
But why do you want invest in something that has a 0% cash on cash return?
What makes the land you have your eye on so good?
Bye
Steve McKnight
**********
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**********Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
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Well wheather vacant land is good or depends on your strat to building wealth. If you strat is wraps, then this is not for you as you make your money via buy then on selling.
If your wealth strat is to buy and hold then live off the rent produced by these properties then vacant land is the next phase after you have enough properties for you to retire and the property boom is going on all around you.
With a buy and hold strat you eventually get to a phase where it is very difficult to find cash positive investments. Back 3 years ago – the good old days where you could buy cheap units that was cash positive all over the place including the major cities you could quite easilly continue this strat. Back then fortunelly I was able to buy units that was cash positive around $40/unit/week. I could do this in Sydney quite easily. It was easy to get returns of 12-15%. But now in a booming market returns are more like 3-5% which dosen’t suit the buy and hold and live off rent strat. You end up having to go further and further afield -eg. rural centers and sooner or later you end up having to travel 5+ hours or even flying to visit you investments.
The good thing about this strat is that in a booming market when you investments double in value you can either sell up and move your investments further afield or you can tap into the equity.
Sooner or later even the regional centers – especially along the coast line gets increadiably expensive with returns comming down to 2% returns. This is when the vacant land comes into play.
Property development is something this is very difficult for the ordinary moms and dads to get into, hence you end up with less competition so it easier to find bargins out there.
With a sucessful buy and hold and live off rent strat you could end up with quite a large equity base that you can tap into.
Without even lookin at the develop and sell strat that most property developers tend to use – because thats all they know and the fact that they don’t like maintaining properties. If you did the sums with the buy and hold and live off the rent strat the sums look like this.
Cost of building a 3 bedroom villa – retail price $100,000
Cost of land – depending on area +$40,000.
If choses correctly you could end up putting in a package together for about $140,000. Yes it is more work and your cash flow will suffer when this the project is commencing till completion but you could end up with a property renting out for about $300/week.
After completion you could end up with
1. Another cash flow positive property
2. The $140,000/property that cost you to build could be worth +$200,000. You can then go to the bank and ask for more money to do the next project.Duplexes and Triplexes are good starting point but you will need about $500,000 worth of equity that you can tap into.
The biggest thing is the starting point – the $500,000. But with patence and hard work a good buy and hold and live off the rent strat you can get there in a few years.
If you don’t have the equity to tap into and you were starting from scratch – borrowing money from the bank for land these days is quite easy. They will be looking at your income, expenses and most of all your savings record. I runs against you because 1st at pointed out by Steve you generate no money from this property, 2nd you expenses are greatly increased because you still have to pay interest on the loan and all the costs associated with holding the block of land (rates/lawnmowing…..)
Also they don’t like lending you more than 70%. What is worse if its an investment then all your costs are not tax deductiable unless you build within 2 years of purchasing the land.
I agree with Steve – be careful when buying land as there is usually no income.
However it can be a great capital gains investment which enables you to do bigger and better things.
April last year I bought a block of land for $150,000. Since then I have had offers made of well over $300,000 for the land and I am confident I will be able to sell it for around the $500,000 mark early this year. It is my intention to sell it as it costs me money every month – but It was definatly worth buying.
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