Hi,
I am looking into financing a land purchase shortly. I plan to resell the land maybe prior to settlement but in case I don’t I want to have finance arranged now. I am considering consolidating my existing mortgage and allowing for the land purchase with a line of credit.
The most obvious advantage I can see is that I should be able to sell the land and purchase an IP without the hassle of further applications & associated fees later on?
Just wondering if anyone would care to comment to a newbie on the advantages and disadvantages of a line of credit used in this way.
Thanks,
Shralper.Hi,
Thanks for making your post.
I want to make sure I understand… you have an existing property and you are planning to use (redraw/refinance) the equity in this to fund your land acquisition. The application of that equity will be via a LOC (line of credit).
If you do this then you will be able to pay cash for the land (if you need to settle) which will prevent you from having to set up separate finance in advance.
I imagine that if you do need to settle then you will refinance your land as a stand alone loan to free up your redraw (LOC) for other investments?
As a comment – it sounds fine, expect perhaps that you will need to pay establishment and other charges to claw back the equity in your existing property. Some lenders charge a facility fee whether or not you use the LOC – check this out.
I would advise that you should further develop your plan b (ie. make a plan c) just in case you cannot sell the land and you need to fund the -ve cashflow for up to six months+.
Check your affordability , together with how much you could borrow if you needed to establish separate finance. Eg, most lenders will place restictions on how much they lend for vacant land.
Finally, and above all, it’s critical that you have some kind of bigger plan for why you are pursuing this strategy.
Cheers,
Steve McKnight
**********
Remember that success comes from doing things differently.
**********Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
The plan is basically to find an IP with a +’ve cashflow in the next year or 2. So far, no luck. Plan C is to build on the land, I would prefer to avoid the building process. The land could make us a small profit, when sold, enough to cover all the fees involved in refinancing and chip away at what we have left on our mortgage, placing us in a better position when the right place comes up. The LOC will give us more flexibility and hopefully save some money until we get that first +’ve IP.
I hadn’t intended to refinance the land as a stand alone loan (more fees), I’m not sure yet whether I could afford to take on another investment until the land has sold anyway.
I will check on establishment charges and facility fees. Thanks.
Shralper
Sounds like a good plan. You can always refiance the land later on if you decide to keep it.
I have also heard of people buying property using their LOC, waiting a month or so and then getting finance on the property at a value higher than the purchase price by claiming they had made improvements etc. One guy said he got $16,000 extra for just mowing the lawn!
Terryw
[email protected]Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
The topic ‘Line of Credit’ is closed to new replies.
