Hello all,
I’m considering the purchase of a small farm and lifestyle property in NSW [cowboy2]. I was wondering if anyone has purchase a farm and what are the banks lending criteria for this type of purchase?…I have heard that you need a 30% deposit?…since the farm is in the region of 1.25 million that is a fair amount of cash to have on hand, and that does not include the stamp duty! Anyone been down this road before?
Yep, some lenders will only lend up to 70% on properties with a large land area. Say 20 acres or more.
We had to hunt around but did find a broker who could get an 80% lend at the standard interest rate without LMI.
Live, Learn and GrowLifexperience
Bankwest recently announced they can lend up to 95% for large acreage properties, but no working farms, up to 100 acres from memory. But there will be limits at high LVRs. Probably 95% LVR would be up to $750,000 max.
Terryw
Discover Home Loans
Parramatta
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Thank for the replies. Good to know that I don’t have to settle for a 30% deposit.
The property is on 38 acres, with a house valued at $600.000. Its a working farm with a current annual return of approximately $50000 net.
Micasa
Hi Micasa
Buying a farm for lifestyle is great. The sight, smells and country hospitality is something to treasure…..HOWEVER….if you’re borrowing heavily to purchase and that level of debt is hanging over you for a fair period of time it can become very stressful very very quickly.
Just glancing over the basic numbers gives me reason for concern.
House value = 600,000
Farm cost = 1,250,000
Difference = 650,000 …this is the cost of the business (yes farms are businesses)
Deposit = 30% or 375,000
Debt = 875,000
Interest bill @ 7.5% = 65625pa
Return = 50,000pa
Return on the business side – excluding the house value is (50,000/650,000) = 7.7%…not real flash.Now I assume that you will be working the farm and therefore will not be able to work elsewhere so your ‘business income’ is 50k. This is less than the interest bill alone on this farm….OUCH. What are you planning to do to cover the remainder and have something to live on? Thinking lifestyle is good but you need to be able to live.
Ben
Hi Ben,
I don’t plan to work the farm just yet, only live there. The place is returning 50k net and is managed by a contractor. There will be a net increase of income to 65-70k in two years, as the young crop matures. There is also enough room to increase production in the long term, which would see a net return of 90-110k ” but I mean long term! 8 years!
I’m told by my broker that this will be classified as a commercial loan, which might mean higher interest rates and more cost! [angry2]
It is a lifestyle choice, so that is worth more to me than money…if all fails I can sell my investment properties and pay off the loan…that is plan B!…not good from an investment point of view…but hey you cant take it with you!!
Cheers
Micasa[cowboy2]I’d guess that if anyone could get you the loan you want, TerryW would be able to!!!! Try him.[thumbsup2]
Terry,
I see you are at discover home loans, does PropertyGuru still work there?Cheers
Live, Learn and GrowLifexperience
Just goes to show, there are always people doing what you are!!
Good to know that over 70% can be sourced, we have been told it is possible te seperate the house value from the land for lending purposes from traditional bank, but nothing confirmed as yet.
I have just made an offer on a property that we will run a horse agistment business from, base income of around $55,000/anuum with upside to $75,000 before any additional help might be required.
Less $ that Micasa at mid $900s, we will be selling our home so are viewing the deal from the point of view that we save the interest costs on the family home which frees up a fair bit of cash and we become cash flow positive also with upside by improving the capital value of the property, especially as it is readily accessable to the City.
Rob
Hi
Bankwest actually will NOT lend for working farms. They will lend for large acreages, if they are not farms.
But you may be able to get around 80% LVR for something like this.
It may depend on what sort of farm it is and what it actually looks like.
Lenders don’t seem too keen on cattle farms for example.Life X. Property Guru is works with us, but he is in India for a while at the moment.
Terryw
Discover Home Loans
Parramatta
[email protected]
Sign up to my mailing list.
Just send me a blank email, with “subscribe†in subject line.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
Terry,
That’s why I can’t get in touch with him.Would I be able to contact you WRT changing a loan PG initially set up for me at Discover??…..
cheers
Live, Learn and GrowLifexperience
Sure Life. I ahve no idea who you really might be, and am not sure what “WRT” means.
Terryw
Discover Home Loans
Parramatta
[email protected]
Sign up to my mailing list.
Just send me a blank email, with “subscribe†in subject line.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
Hi Terry,
Bankwest would be prepared to lend up to 70% on their business edge loan @7.92% fixed for 3 years. The application fee is .5% of the loan amount, therefore if the loan amount was say $860,000 the app. fee would be $4,300, which is a bit of rip if you ask me.
NAB have a rural loan for 6.99% but the farm income has to be less than $20000 a year!! not sure why a farm earning more income is a problem? does not make sense to me.
Micasa
Terry,
WRT – with respect toI am real, just very careful how much personal info I expose on the net for security reasons.
will contact you by email
Live, Learn and GrowLifexperience
Funnily enough a lot of lenders done like income producing properties. The size and zoning of the land are not so much the issue – what will be the issues they will look at will be:-
– Can you service the loan
– Postcode of the propertyI would recommend that you shop around using a broker who doesnt charge a brokerage fee – they should be able to find you a lender that will go to 95% plus capitalise the LMI costs if you can service the debt.
Anita Marshall
Advanced Finance Solutions
http://www.advancedfinance.com.au
[email protected]Thank Anita,
Will keep shopping around for a better deal.
Micasa
Micasa
I would get in touch with Anita directly.
Rob
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