Basic set up:
My parent are in the process of subdividing their back yard to create a new block which they planned to sell.
My wife and I are looking at buying or building our first property.
We have been in discussion with my parents about the idea of us building on their block and then selling and splitting the profits. However I'm not sure how this will work from a practical and lending sense as we would not own the land that we would be building on.
If anyone has done something similar or knows how this might work your insights would be much appreciated.
So let's get this right – your parents subdivide their land and they still own it. You want to build on their land and they sell it and split the profits. Is that correct?
Regards
Shahin
TheFinanceShop | Elite Property Finance
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More or less. The reasoning being that there is more profit in the sale if there is a house rather than them just selling the land as a vacant block.
Ok is the issue that your parents cannot service the loan? Or is there another issue?
You will not be able to jump on the loan as you are not on the title.
Regards
Shahin
TheFinanceShop | Elite Property Finance
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They have the funds to complete the subdivision but not to complete the build. We have the funds to build and not having to buy the land would be a bonus. The idea is that we could do this as a joint project between us and them and but as I said I'm not sure of the way(s) to go about it.
Hi Clintron
It sounds feasible from a planning perspective. It depends on the state you are in, but in QLD for example you can build the house post approval but before plan sealing.
Remember to include infrastructure contributions in your figures, can be up to 28,000 in Qld for a resi lot.
Always better to at least scribble out in writing first who does what, who owns what and how you deal with things that may arise. Make it very comprehensive. Won't stand up in court the way a lawyers joint venture agreement would, but will greatly reduce chances of fighting.
D
RPI | Certus Legal Group / PRO Town Planners
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If you have funds to build and parents have then why not just enter into a JV agreement and slit the profits accordingly.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
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Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
So your parents own the land and you want to give them effectively the funds to build the house – is that correct? If so where does the lending question come into play?
Regards
Shahin
TheFinanceShop | Elite Property Finance
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Sorry I think I was a bit unclear, I have the ability to borrow funds to build. However as my parents own the land I'm not sure if banks would consider lending to me for the build.
clintron wrote:Sorry I think I was a bit unclear, I have the ability to borrow funds to build. However as my parents own the land I'm not sure if banks would consider lending to me for the build.No they woudn’t. You don’t have any security to offer. (unless you used o
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
Righto – the answer is no the bank will not lend you the money as you are not on the title. The bank's view is that you do not gain anything from the loan if you are not on the title. The only time this works is in a spousal arrangement, i.e you are on the title then you can add your wife onto the loan for servicing.
Can your parents borrow the funds? If not, why not? Age or employment?
Regards
Shahin
TheFinanceShop | Elite Property Finance
http://www.elitepropertyfinance.com
Email Me | Phone MeResidential and Commercial Brokerage
No hate to say you wont be able to finance the deal unless you are party to the Title so you are going to need to physically purchase the property.
Course there are other considerations in regards to finance, structure etc as you don't want to find you end up paying CGT & GST on the property.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
How do you parents own their own house and land? They might own it in a family trust with corporate trustee which could open some options. But that is assuming a bit too much foresight perhaps.
I have a friend who's parents inherited the grandparents home directly behind their home. The son (my friend) due to his large income and his parents semi retired nature is now in the process of using his income for serviceability to fund the building of 3 new homes whilst keeping one of the original homes on a smaller block. I think its a JV between two companies they created so one could provide the land as security with the other providing income as serviceability. personal guarantees given by all parties. But they will transfer 1 or 2 homes to a discretionary trust after completion. Yet i think from your post you are trying to avoid paying stamp duty?
You need to be on the title in order to take a loan. I do not think any bank will give you a loan since you do not own the land. Can your parents put you on the Title or can they take a loan to build a house?
Matt you are correct you wont qualify for a 3rd party loan.
Unlikely that clintron's parents will hold the property in a Trust name being their PPOR but i guess it is possible.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
As part of the JV agreement, the parents could allocate part of the property to you by splitting the title as tenants in common. There are tax issues on which you'll need advice.
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