Browse Forums Home Finance 1 Sep 09, 2009 4:53 pm Hi all, new member here. What a great forum! I have learnt a lot browsing through here. Can anyone please give me some advice on this idea? My partner and his brother are thinking of getting a 'construction loan' each to develop a property owned, but not occupied, by their parents. They have their parents blessing to do it, because their parents don't use the land and are happy for it to be used for the family's benefit. It would mean knocking down a big (verrry old) house on the block and subdividing the land into two; The brothers would then take out a 'construction loan' each, to build their own house on each subdivision. The parents would retain the title to the land. It would mean that the brothers would initially only have to get loans for the house constructions. Then when those construction loans are paid off, they can take out further loans and purchase the land from their parents. The advantages would be that the brothers (and their partners, one of whom is me) would get to live in this neighbourhood, which we like, without each couple having to take out a massive $600k loan all at once (to buy house and land together). We'd only need a $250k loan (or however much it costs to build), and can take our time in purchasing the land under the house. Can you please give me your views on the financial advantages/disadvantages of this arrangement (including applicable taxes and stamp duties)? Cheers! Re: Question about constructing on land owned by a third party 2Sep 09, 2009 5:03 pm Interesting. I'm no expert, but a lawyer would have to be contacted in order to facilitate this arrangement. The one issue that stands out for me is that the banks will not give you a construction loan unless you have other security. If something was to happen, they cannot repossess the house and sell it off as the land is owned by the parents (maybe the parents guarantee the loans or something - and the land is then used as security on the construction loans). Later on, when you buy the land off the parents, you would have to pay the applicable stamp duties as required. The advantage is that you can buy the land cheaper than market value and therefore save on stamp duty (but I'm not sure what % of market value you could put the land in at and get away with). The parents would also be hit with capital gains tax on the sale of the land as it's considered an investment (unless it was bought before 1986) Whatever you do, you would have to appoint a solicitor experienced in this field to walk you through the best process now. It may even get more complicated with setting up family trusts or something to save costs later on. As I said, I'm no expert, but it's an interesting scenario. Blog is now up - http://www.jbdave.blogspot.com/ Yeah I don't know why I came to a forum. Place is full of wierdos/pedos thought internet may help but I suppose I'll try my luck with someone in person. Cheers. I tried… 0 6438 Need advice on the backyard plan above. Should I excavate and cut all of the dirt to level with the house slab or semi-excavate as per photo above? Both left and right… 0 24860 13 6631 |