hi
just wondering how land banking works
bit confused
lets say I bought a land for 100k
paid 10% on it
with no title
and its like that for 2 years
the value has gone up by 30k
current value 130 K
can I onsell to some one else
if so what are the expenses involved
do I need to pay stamp duty ????
in general is land banking profitable or not worth the hassle of all expenses considered …
can you shed some light as 360 degree view
thanks guys
sri
Yes there will be some stamp duty.
Am I understanding correctly? You want to buy vacant land which cannot earn rent to help with the mortgage. You want to put in 10% so therefore you will borrow 90%. Per year the interest on such a loan will be say, at least $7k per year. That's $14k. You then plan to sell at $130k. Let's subtract the costs. Buying costs $100k, legal fees $1k, interest $14k, onselling fees $2k. So that gives you a "profit" of $130k – $100k – $1k – $14k – $2k = $11k. And that is not even factoring in stamp duty, council rates (yes they will still bill you for garbage removal etc even when there is no house on the land), lawnmowing (yes you are obliged to keep the grass below a certain height due to snake danger) and anything else I have not thought of. So you've made $11k profit. Because you held the asset for more than a year you'll get 50% exemption on the gain. So $5,500 is taxable income. Taxed at say 30% you're left with what, $3k ish? What is the point? I would not suggest you proceed with taking on such a risk for such an insignificant gain. Sorry to be so negative!
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
If however you knew of a plot of land that was cheap as chips and eligible for rezoning to industrial, commercial, or from say semi rural to fully-blown residential 1, now that's another story.
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
hi jacM
thanks for your reply … thats helpful .. thanks for the insight but I think i might have confused you
I have heard people doing it …
here is how it goes
I sign for a land with 10% deposit …
it has no title
and title is a bit far away – lets say 2 years …
I am not going to borrow 90% from bank
lets say the land value has gone up by 30 K and I have decied to sell after one year
I havent settled the land on my name at this stage
what would be costs involved
would I settle and the next person settle on the same day …
can any make any profit out of this ….
enlighten me please …
sri
What sort of document are you using to 'control' the land with your 10%? Option? Some other form of agreement? IT all comes down to how you did it in the first place. Without knowing the details its hard to give any kind of suggestions or estimates on what's possible or not possible.
As JacM suggests, if you find a piece of land elligible for rezoning, control it via an option or similar type of contractual document, either do the DA/MCU or onsell in a few years (if you get that long from the vendor) to someone else who wants to settle for a higher price, then yes you will make some profit, being the difference for what you offered to pay under the agreement, and what you can onsell it for, although you're liable for stamp duty on the option fee (in Qld anyway not sure about other states).
You could in theory settle simultaneously, both contracts settling on the same day. Comes down to the conveyancing and lawyers instructions.
It all depends on a) how you've controlled the land, and b) how well you've chosen the land. Doing it with any old block with no potential at all is not going to get you far.
Matt007 wrote:What sort of document are you using to 'control' the land with your 10%? Option? Some other form of agreement? IT all comes down to how you did it in the first place. Without knowing the details its hard to give any kind of suggestions or estimates on what's possible or not possible.As JacM suggests, if you find a piece of land elligible for rezoning, control it via an option or similar type of contractual document, either do the DA/MCU or onsell in a few years (if you get that long from the vendor) to someone else who wants to settle for a higher price, then yes you will make some profit, being the difference for what you offered to pay under the agreement, and what you can onsell it for, although you're liable for stamp duty on the option fee (in Qld anyway not sure about other states).
You could in theory settle simultaneously, both contracts settling on the same day. Comes down to the conveyancing and lawyers instructions.
It all depends on a) how you've controlled the land, and b) how well you've chosen the land. Doing it with any old block with no potential at all is not going to get you far.
hi matt
thanks
what are 'da'/mcu documents
can you explain further
what do I need to ask the REA agent to see if there is a possibility of on-sell
thanks again
sriI think Sri may be referring to investing 'off the plan' and onselling prior to settlement..
My understanding (QLD knowledge only) is that the original purchase documentation should allow you to onsell the allotment prior to settlement. Generally once the title has been registered there would be a similtaneos settlement. This is the time in which you would receive your profits on the deal (i.e. not at the time you sold it to the other). Generally speaking you would be required to pay stampduty and capital gains tax however I have heard of differing ways this may be reduced but can vary from state to state. I.e. securing the land under 'option' rather than 'purchase contract'. Using 'an or nominee' as the purchasing entity.
Many people have made money investing 'off the plan' however many have lost money. It is important to do your homework and have a genuine belief that the property will be worth more upon competion (not just the agents say so)Also developments can take alot longer that originally suggested and even if you on-sell you are still responsible for the purchase until the other party settles, thus if they fail to setttle, you must.
Therefore dont even think about this strategy unless you have the ability to settle if need be.
Hope that helps a little.
Thanks Intrigue – Sri can you clarify whether you are talking about buying 'off the plan' or actual land banking as they're two separate things requiring two separate strategies.
DA=Development Application
MCU=Material Change of Use
They're only relevant if you're looking at land/sites with development potential.Thanks,
Matt.Matt007 wrote:Thanks Intrigue – Sri can you clarify whether you are talking about buying 'off the plan' or actual land banking as they're two separate things requiring two separate strategies.DA=Development Application
MCU=Material Change of Use
They're only relevant if you're looking at land/sites with development potential.Thanks,
Matt.thanks intrigue and matt
yes I am referring to investing off plan
sorry If have used wrong term for it …
its confusing
one example is
lets say melton
if I buy a land there now
for some of them titles arent untill middle of next or may be later
then
i would onsell to some one before titles are released
what would be process
my understanding is
both parties settle on same day
i would have pay stamp duty and cg tax on profit made
but there would be more in this process
considering all this — doesnt look worth the hassle for the profit made ( unless a good one )
intrugue — so i should have an option to buy land as an 'option' rather than purchase
can you explain on 'nominee' part
thanks
sriSri, I am not the best person to answer these questions (sorry can provide the hints but not the clear advise) there are however poeple on here that will be able to help.. TerryW I believe is well versed in options etc (behaps you could search past posts on options).
I believe that in some states (perhaps VIC) by using an 'and or nominee' as the purchasing entity you can avoid stampduty and capital gain? (you purchasing entity would be eg. John Brown and or nominee). Prior to settlement you would arrange new documentation to be made up between the seller and the new purchaser.. (not all sellers are open to this so would have to check).
Options are different again and there are many types. The most common I have heard in 'off the plan' is putt call options. Again the terms of these differ in differing states (I think) also not all sellers will be interested in partaking in options. You will need to do some homework and understand it well if you are to negotiate for such terms.
You must be logged in to reply to this topic. If you don't have an account, you can register here.
