Investment advice – re finance

Hi All

I was not looking to invest at this stage but what I believe is a “true bargain” has come up and myself and my father have jumped on it. It is a 2 acre (7950m2) block of land 15 minutes from Darwin City for $270,000. It has town water, sewerage, underground power, landscaped verges, street lighting, council garbage collection etc. Where I live is less than 3km away and a 700m2 block here is $270,000.

Anyway, we have decided on house plans and will be spending $350,000 on the house (bear in mind, that in Darwin houses are very expensive to build – land is generally a lot cheaper than the house).

What I need is advice regarding the finance.

I am in a good position – I’m 25yo, earn around $120K a year (and have done so for the last few years with no sign of it ending). I spend (together with my fiancee) about 40% of my take-home income and the rest is saved (put into our offset account for our own home). I have no other investments at this stage. I have a home worth $470,000 with $150,000 equity in it.

My dad is 56yo, earns around $100K a year. He spends about 30% of his take-home income and saves the rest. He has a $350,000 house which he fully owns, a $120,000 block of land he fully owns and about $500K in super.

Together, we think our risk profile is pretty good. However we want to borrow 100% for this deal and negatively gear it as much as possible. We believe this area has huge potential for capital gains and that is where we want to make our money. Up here we have the defence housing authority and they have indicated interest in it (as long as we maintain the yard). We want long term security that a DHA lease provides.

I was wondering if it was likely the bank would lend us $620K on this (obviously) $620K property we are building. We will easily get $550 a week in rent – I have done a bit of research and we will get that easy. Even when I look at $500 a week rent, we can still easily afford it. Our gross loss will be about $20K a year but since we will both be in the 43.5% bracket, that number reduces a fair bit. We will also have a fair bit to depreciate on a new house.

Affordability for us is not a problem, and my dad is happy to let the bank take security over this other block of land which is worth 120K.

Do you think this will fit in with their lending criteria?

I will be approaching them (BankSA) this week as we have already put a deposit on the land and need to have our finance arranged within 14 days.

Would love to hear some opinions on whether the bank is likely to lend this to us.

Regards
Adam