How to secure loan for land - non farmer

flashforward

A parcel of land has come up for sale which borders my site (will likely go for ~200k). I don't farm.

I've equity in my home which if I could remortgage would cover the loan but I've been told by a mortgage advisor that I can't remortgage the property and use the money for purchase of land.

I spoke to BOI agri loans but they want a herd number, Max loan was 120k regardless.

Repayment capacity is not a problem, the problem is finding someone who will lend the money.

Any suggestions?

jackboy

https://www.boards.ie/discussion/2058257000/how-to-secure-loan-for-land-non-farmer

Your own bank is your best bet but you will need to tell them what you are going to do with the land and how that makes financial sense.

flashforward

My banks are Ulsterbank (current account) and KBC (mortgage) so not a great starting point.

I don't farm so I'd likely lease the land.

Grueller

No deposit, no loan I'm afraid, unless you have other land to put up as security.

flashforward

I've a deposit of ~20%. But yeah it doesn't look like I've any options frustratingly.

J.O. Farmer

https://www.boards.ie/discussion/comment/119415334#Comment_119415334

Have you also 7.5% for stamp duty and another couple 5-6k for legal fees. The bank won't lend to cover that.

Really banks want to see repayment capacity and security.

Maybe ask about a non agri commercial loan. They may want some kind of business plan though.

Buying land to lease doesn't make sense short term-medium term though. Unless the plan is to sell again or you want to do something else with a portion there may be better investments.

Edit: the land itself could be security if the loan to value is low enough. I think maybe round 70%

flashforward

There's 300m of road frontage near the village so there's a definite possibility of sites for those who meet local needs. I don't think a business plan of selling off sites would work for a commercial loan or business plan though?

Whatever I'd tell a bank the only sites off this parcel would be for my Children if they wanted them.

Repayment capacity isnt a problem, if I had a stronger deposit situation I could borrow over twice what I need here.

K.G.

https://www.boards.ie/discussion/comment/119415751#Comment_119415751

If you can rise 30 % + of the property value it really smooth s the bumps and makes you very backable.equitity in your own home is nearly worthless for this proposal

Mooooo

They'll have no interest in house equity as they would find it difficult to get it if it went that way. As lads said above bigger deposit if you can swing it, and as much proof that your repayment capacity won't be under threat.

roosterman71

https://www.boards.ie/discussion/comment/119415751#Comment_119415751

Road frontage means diddly squat anymore unless the land is zoned for residential or you're farming it and building on it. Ya'd need to check the local planning for your council and area in the county to see what's the story. I've land within a 50km zone on an R road and it can't be built on due to current planning laws in the county. Couldn't even build on it myself as it's access is onto an R road and I've other land on L roads. So be careful if ya think ya might get to build

flashforward

Thanks for the replys all.

It's zoned 'Non-residential' but I wouldn't be purchasing it for the potential of building on it (Looking at 20+ years before a kid would even be in a position of needing to build regardless) . It's more that no one else will build on it and it would give me options to do something with it when I get older/kids have fled the nest.

Pulling 30% can't be done unless I borrowed for it - surely I couldnt just go to the credit union, take out a 20k loan, add it to my 40 and a bank would be happier than borrowing the additional 20k directly from them?

Again the frustrating thing here is the ability to repay without having a mechanism to borrow. I'm trying to arrange a sit down with BOI but people are on holidays.

asdfg87

https://www.boards.ie/discussion/2058257000/how-to-secure-loan-for-land-non-farmer

You could consider applying for forestry if only to obtain the loan. Likely not a runned but a thought.You cannot ask the seller to wait for license for trees but i just thought i say anyway...

cute geoge

https://www.boards.ie/discussion/comment/119417139#Comment_119417139

Have you not anything you can sell to raise 20k like a car ,buy a banger for a few months to keep you going ,Sell other stuff to raise cash phones ,tv ,laptop ,your wives jewellery 😀

asdfg87

https://www.boards.ie/discussion/comment/119417139#Comment_119417139

Ask an accountant, i seen a guy bought land some years and an accountant set-up the funding, the buyer had a business.

Deub

would you be happy to have only a portion of the land (The one next to your house)?

The solution could be to offer the seller to buy only a portion at a higher price per acre or to agree the same with an adjacent farmer interested in the place as well.

The chances are low but at least you would have tried.

Bass Reeves

There is no reason you cannot borrow the 20k from a CU. However if you do it may or may not hinder you getting the bank loan. The loan can be termed as a car or for any other matter. It may also be in your spouse or partners name.

If you do not intend to use your spouse or partner as part of your loan application then it will not appear in your loan application. If you do intend for you spouse/partner to appear on the application then the loan may hinder you.

You have stated that your repayment capacity is twice the loan amount. The bank may allow a 80-90% loan in a case where your repayment capacity is very strong.

What I struggle to understand is if you repayment capacity is so strong how come your savings are so low.

Were you overpaying you mortgage to the detriment of savings

Donald Trump

https://www.boards.ie/discussion/comment/119417162#Comment_119417162

The minute it is planted, its value will drop to forestry value and it will stay at that permanently.

Going to the Bank with that plan would be like going to a finance company to buy a new car and telling them it'll be grand because that they'll have the car as collateral, but you're planning to race it in stock car races.

amacca

https://www.boards.ie/discussion/comment/119417139#Comment_119417139

If you borrow for the deposit it will show up as a loan on a central credit register and the bank you are borrowing from will be aware of it afaik........catch 22 it could probably hurt your chances of borrowing the full amount......

If you borrow from the CU etc it will show up as a transfer into to an account .....if you include that in your deposit.....its highly unlikely they won't ask you for the source of funds....its only my opinion but I cant see many banks looking too kindly on borrowing for a deposit in order to borrow more on the strength of that deposit and its unlikely they won't look for an explanation of where the funds suddenly came from.........the days of doing while not so far in the past are over I think

Perhaps selling things (like car etc) to build up a deposit might work....... but it would be a pain in the tits to sell things you need not get to purchase the property and then have to go buying them again......

Donald Trump

As Bass said above, OP they would have to question why you have relatively low savings relative to your repayment capacity. Unless you have just finished paying off something else.

You have 40k, but as J.O alluded to above, you really only have 20k because you'd need the other 20k for costs.

K.G.

Are you really in a position to buy it so.is this is really a financial proposition it's the kind of thing you do if you have money lying around not with borrowed money

flashforward

Fair point re. savings. The house was finished last year (Direct Labour) and we've almost finished the landscaping this year. So everything for the last ~3years has been pumped back into it (primarily cash), hence the small mortgage relative to the value of it.

The end of the spending on the house is all but here albeit 6 months too late by the looks of things.

https://www.boards.ie/discussion/comment/119417412#Comment_119417412

It certainly does not look like I am in a position to buy it K.G.

Donald Trump

The question would then be that even if you could get equity release on your house, would you really want to put it at risk?

amacca

https://www.boards.ie/discussion/comment/119417511#Comment_119417511

Yep...have to say I agree with this.

Bass Reeves

https://www.boards.ie/discussion/comment/119417511#Comment_119417511

He made the cardinal error of not borrowing more mortgage money. It's a deeply flawed thinking about borrowing more than you need to allow a bigger cash flow.

In OP's case he could have kept a100k in cash without any risk to his house. Mortgage money is the cheapest money you will ever borrow.

Capital give opportunity.

Donald Trump

https://www.boards.ie/discussion/comment/119417528#Comment_119417528

It is. But he might not have considered that he'd be buying anything up until the bit across the ditch came up unexpectedly.

Bass Reeves

https://www.boards.ie/discussion/comment/119417568#Comment_119417568

It is something I always make the point about. Opportunity.

People often look at money in the bank the wrong way. They look at it earning 0%. Then they look at a mortgage costing 2-2.5%. OP seems to be very lowly borrowed. 100k would have allowed him to buy it. I suspect that OP is at or below 50% equity to loan. 60k extra would probably have still kept him at or below 70%.

It would be different if mortgage rates were 5-6% or more. But mortgage rates are 3-6% below personal lending rates.

asdfg87

https://www.boards.ie/discussion/comment/119417351#Comment_119417351

Why would you say land de-value as there is a big push towards planting? My information is planting is one of the easiest thing to get a loan for at the moment as banks are investing big-time in planting, the bank will keep the land as security. Of course each case separate.

I know a guy who is currently in the process of obtaining a planting license, the land is to be sold when license granted as its nearly there. The auctioneer advised to get license and the value of the land would in crease in value by about 30% it the license is granted.

Donald Trump

https://www.boards.ie/discussion/comment/119417695#Comment_119417695

Unless it is very bad land, planting will devalue it

Here is 65 acres for sale at less than 4k an acre. It appears to be surrounded by good land.

http://www.foresttomarket.ie/forest-sales-d.asp?PROP_ID=516

You are also not allowed to just revert planted land to agricultural land

Del2005

https://www.boards.ie/discussion/comment/119417528#Comment_119417528

With interest rates so low on savings it would have been silly to borrow money, even at a tracker rates if you can get them, while having money lose value in a bank account.

https://www.boards.ie/discussion/comment/119417695#Comment_119417695

The OP wants to buy the land for possible houses for their children, which is highly unlikely to be allowed, or build something else. Once you put forestry on land that's all it can be for ever, they'll never be able to build anything on it. It depends on the quality of the land on it's value increasing or decreasing when planted, crap boggy land with loads of rushes will increase in value if planted vs well draining fields will loose value if planted.

cjpm

OP. Are there any natural subdivisions in the land? What acreage is it? And the various portions?

asdfg87

https://www.boards.ie/discussion/comment/119417751#Comment_119417751

They could build a log cabin without planning.

Seriously i was thinking of an angle to borrow, i think if they were able to get the money there would not be forced to plant.

Actually your right the bit of land being planted is marginal land. I am doing a small native plantation in the new year. Why would it decrease the value of the land? it will still be farmed with grazing sheep.

asdfg87

https://www.boards.ie/discussion/comment/119417750#Comment_119417750

I hear you, assuming it is the same as the surrounding land its total turnover is about 1% of the land value, i expect the surrounding land be at least 10k per acre.

Grueller

https://www.boards.ie/discussion/comment/119417781#Comment_119417781

That is agroforestry not planting.

asdfg87

https://www.boards.ie/discussion/comment/119417817#Comment_119417817

I am aware of that, i don't like sitka. I am not even sure i am doing the right thing but i think i am.

Does anyone know if agroforestry decreases land value, i am not doing this for the money and am just curious...

Bass Reeves

https://www.boards.ie/discussion/comment/119417751#Comment_119417751

You obviously never invested in your life. We are entering a downturn there is always investment opportunities in any recession no matter how benign.

OP as well disobeyed what most financial advisors will tell you to try to keep the equivalent of 6 months wages in cash. 60k kept in cash would cost him 1200-1500 per year at mortgage rate. Borrowing it at personal rate 40k would cost you 2800/year. If OP had 100k in savings the bank would look more favourable at the purchase.

OP is hardly going to tell the bank I want to buy it for to have sites for my children.

Bass Reeves

https://www.boards.ie/discussion/comment/119417812#Comment_119417812

I would think the land value is 10k+. I also think the OP will find it will go 10-20% above guide price unless OP has allowed for that.

Forestry may not pass muster with a bank unless you tell them it's part of your long-term pension planning. I suspect that the land area maybe too small for forestry.

TBH the OP need access to an old style bank manager who will only look at the repayment capacity and lend the money. OP may be as well off going the line of ''I want it to keep a few ponies for the children and a bit of hobby farming''

However his conundrum is lack of equity

AnF Chuckie egg

Land prices are very high here in Ireland due to many factors from parcel sizes, history, planning laws, Tax and inheritance etc. But as an investment farm land gives a very poor return managing only 1-2% at times even when well farmed and all grants and incomes used.

200k on farmland as a single unit might not give as much as 1% per year to a non farmer. Compare that to if say the OP was to buy an apartment or house he would see a ROI of at least 6-8% and even higher in some cases. Plus it's easier to get a loan for and interest rates are lower for bricks and mortar than farmland

asdfg87

https://www.boards.ie/discussion/comment/119418020#Comment_119418020

That's why i mentioned an accountant earlier as bankers hands are pretty well tied so there need be a go between.

I know a guy who paid €500k+ for land some years ago and the bank would only allow about €200k loan on it.

He sold it recently for €1.4 mil.

Do you know if agroforest will de-value land value?

Donald Trump

https://www.boards.ie/discussion/comment/119418059#Comment_119418059

"Past performance is no guarantee of future returns".

The "problem" with planting trees is that you cannot just change your mind in a few years and legally cut them down. There is nothing wrong with planting trees - just be aware that if you put in rows of trees for your agroforestry, that if you later decide to sell that land, it's not going to be attractive to a fella who wants big fields for big machinery. That will make less difference if you are in an area which is not suitable for tillage.

Del2005

https://www.boards.ie/discussion/comment/119417781#Comment_119417781

The log cabin can't be lived in though. Planning permission is for use so living on the land requires residential planning permission regardless of the building being temporary or permanent.

Bass Reeves

https://www.boards.ie/discussion/comment/119418059#Comment_119418059

Not really sure. Even if it will not at present you never know how long term rules will effect such development.

https://www.boards.ie/discussion/comment/119418049#Comment_119418049

I bought land in 2003. It cost 320k. I have probably put another 50 k into it in real terms. Over the last ten years it would be generating an equivalent income of 30k+

The total property is now worth 700k plus. The first ten years were tricky with 3 of them hard going

The investmentment return is 15+% in my case

asdfg87

https://www.boards.ie/discussion/comment/119418105#Comment_119418105

The reason planting taking place is too much machinery, people want to take silage 2 times and slurry so this is the option being taken.

Its not a large piece of land anf the money not priority.

https://www.boards.ie/discussion/comment/119418116#Comment_119418116

I think the plan is to have a little cabin that can be used occasionally at weekends in summer.

I think the same rule apply as portocabin.

Donald Trump

https://www.boards.ie/discussion/comment/119418130#Comment_119418130

I think you are saying a 150% return over the 19 years?

That's 5% return per year, just to decompound it for comparision

asdfg87

https://www.boards.ie/discussion/comment/119418182#Comment_119418182

I make it 220%

Donald Trump

https://www.boards.ie/discussion/comment/119418234#Comment_119418234

I'm not commenting on the total as I don't know the figures.

I merely referenced the "15+%". I thought it could be a typo. If it's not a typo and he meant 15% return per year, that would means 1 Euro in 2003 growing to over 14 Euro today assuming he means annual return in the normally understood sense. If he is quoting it as a "simple" return (total return divided by number of years) then that is a bit misleading over that time frame.

My post was merely decompounding 150% over 19 years for comparison. It might not be what he meant.

For yours, 6.5% return would give a 230% overall increase

Bass Reeves

https://www.boards.ie/discussion/comment/119418182#Comment_119418182

The capital return is 120% over 20 years that is 6% a year. It's generating an yearly return of 30k. So at present it yielding a 15%+ return. 700k would be a conservative valuation with present land prices

Donald Trump

https://www.boards.ie/discussion/comment/119418318#Comment_119418318

That's a decent return Bass.

My post was only a comment/clarification between using simple rates and annualised rates for comparison. They'll differ over that time period. The difference is bigger when then rates are bigger. That would correspond to about 4% compounded annually to get to 120% over 20 years. For the below, each line is 4% higher than the previous one. I've rounded for display purposes.

1.00 Start

1.04

1.08

1.12

1.17

1.22

1.27

1.32

1.37

1.42

1.48

1.54

1.60

1.67

1.73

1.80

1.87

1.95

2.03

2.11

2.19 End year 20.

You're also counting the rental income as a percentage of what you paid for the land. Which was 20 years ago. That isn't applicable to the other poster. He would need to look at your land as returning 30k on 700k, not returning 30k on 320k. Which is still very good. I was looking at a 50+ acre block near me a few years ago and figured that even if I got top prices for renting it out, it would be bringing in less than 2.2% (say 300 an acre for rent on land which was asking 14k an acre. I wouldn't have been buying it to rent it...)

asdfg87

https://www.boards.ie/discussion/comment/119418285#Comment_119418285

The only figure i used was purchase against today value and that comes pit almost exactly 22%

€320 X 22% = €700400....

AnF Chuckie egg

https://www.boards.ie/discussion/comment/119418130#Comment_119418130

If only the OP had a time machine. At todays valuation of land 200k would only buy him at most 10 - 15 acres. The income from that much land would be next to nothing for a non farmer, maybe he could rent out the grass or do something like that. Either way it's less than 1% ROI. That's a useless return and relying on the greater fool theory to be able to offload the land for profit in the future. Sooner or later these valuations have to reflect the intrinsic value. I know for me I'd rather buy a good apartment in the City. 200k on an apartment will yield a rent of €1350 pm. Take management fees from this of 2k and that's €13,500k/year at a 90% occupancy rate which is a ROI of 6.75% per year.

kevthegaff

Lad was telling me if u get a loan of 300k u need repayment capacity of 30k a year over 15 yrs roughly speaking

Bass Reeves

https://www.boards.ie/discussion/comment/119418666#Comment_119418666

You are talking through your proverbial. You have no understanding of investment and return. Farming is an active investment it's possible to avoid tax through spending. Rental income is away harder to shield. You can write down farming losses against PAYE income. You cannot write down pre investment costs against rental income. Repairs can be considered improvements and some may not be allowed against rental income

As well as farming is an active investment when you reach 60 years of age you can technically take 750k out as a pension without any tax.