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  • Profile photo of penti99penti99
    Member
    @penti99
    Join Date: 2010
    Post Count: 21

    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

    Profile photo of Jacqui MiddletonJacqui Middleton
    Participant
    @jacm
    Join Date: 2009
    Post Count: 2,539

    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 Me

    VIC Buyers' Agents for investors, home buyers & SMSFs.

    Profile photo of Jacqui MiddletonJacqui Middleton
    Participant
    @jacm
    Join Date: 2009
    Post Count: 2,539

    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 Me

    VIC Buyers' Agents for investors, home buyers & SMSFs.

    Profile photo of penti99penti99
    Member
    @penti99
    Join Date: 2010
    Post Count: 21

    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

    Profile photo of Matt007Matt007
    Member
    @matt007
    Join Date: 2008
    Post Count: 259

    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.

    Profile photo of penti99penti99
    Member
    @penti99
    Join Date: 2010
    Post Count: 21
    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
    sri

    Profile photo of IntrigueIntrigue
    Member
    @intrigue
    Join Date: 2010
    Post Count: 208

    I 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.

    Profile photo of Matt007Matt007
    Member
    @matt007
    Join Date: 2008
    Post Count: 259

    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.

    Profile photo of penti99penti99
    Member
    @penti99
    Join Date: 2010
    Post Count: 21
    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
    sri

    Profile photo of IntrigueIntrigue
    Member
    @intrigue
    Join Date: 2010
    Post Count: 208

    Sri, 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.

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