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  1. #1

    Default loaning from equity on section

    Hi there, wondering if anyone can help...

    I currently own a section with a reg value of 90k. I have 35k left to pay on the mortgage so around 60% LVR.

    I'm wanting to purchase a 2nd section at 60k, a 50% discount from the current reg valuation of 120k.

    Am I correct in assuming I can borrow the deposit from the equity I have in my 1st section leaving upto a minimum of 30% LVR on the 1st section? (depending on servicibilty and the lender). Or will I have to fund the deposit with cash?

    Also after the purchase of the 2nd section, will I be able to use the 120k equity from the registered valuation to buy a 3rd section or am I restricted to the purchase price of 60k?

    Any help on this would be great.

    Cheers, Toph.

  2. #2
    Join Date
    May 2007
    Location
    Hamilton
    Posts
    3,629

    Default

    Hi Toph,

    Talk to a mortgage broker, they should be the best to help.

    Generally banks won't use the $120k registered valuation on the 2nd section, and just go on the cost. They normally use it after a certain period, this used to be 6 months but they are probably more conservative now.

    Also banks will look careful at the income you have to service the loans, especially as sections do not generate income.

    Lots of investors over the last few years have been stuck with empty sections, and get into difficulty because they have no income. Make sure you have a good plan of why you are buying them and what you are going to do with them.

    Ross
    More Profit from Property? TEACH ME MORE
    Ross Barnett - Coombe Smith Property Accountants
    Proud to give the best property advice for over 13 years.

  3. #3
    Join Date
    Apr 2010
    Location
    Global
    Posts
    4

    Default

    Quote Originally Posted by toph View Post
    Hi there, wondering if anyone can help...

    I currently own a section with a reg value of 90k. I have 35k left to pay on the mortgage so around 60% LVR.........
    Cheers, Toph.
    If you dont know then dont do it! Your do not detail location, or servicing ability etc...so its a general question and so you get a general answer. You appreciate economic times are hard and land is not an ideal "investment" for a bank to lend on. Cash flow will be everything in the application. 50% LVR or less will be the criteria. And if the sale purchase price is recorded, then you will not be able to borrow more on the shadow value - get some back up personal guarantees and security worth at least the value of the land and it may work.

  4. #4
    Join Date
    Jun 2005
    Location
    Wellington
    Posts
    1,112

    Default

    Lending criteria will shift from bank to bank, and it will also depend on the section itself.

    * Residentially zoned vs lifestyle or rural
    * Whether it is hooked up to services (water, power, footpaths etc)
    * Size of section

    Lenders will most likely insist on an independent valuation for sections rather than relying on GV's or DV's.

    Residential section where build of a new house is imminent you may be able to gert as high as 75% LVR. For non-serviced lifestyle block it will be on a case-by-case basis but the benchmark is around 50%.

  5. #5
    Join Date
    Jul 2005
    Location
    NZ
    Posts
    986

    Default

    Just out interest, where are you buying sections for $60,000?

  6. #6
    Join Date
    Aug 2009
    Location
    All of New Zealand
    Posts
    837

    Default

    Speak to a broker! But basically sections can be tricky due to over supply although this varies greatly area to area. To give a grim example I know of sections on a marina that sold in 2006/7 for $500K. Recently five went for an average of $115,000! The idea of leverage works well when you stick to the same Lender and they cross charge across each one, in other words using the equity. As has been said above it will depend on an updated Registered Valuation and Bank attitude to lending.
    www.ilender.co.nz
    Financial Paramedics


 

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