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Buying The Farm

Turf farm owners stop leasing and buy their land!

Turf farming can be quite a lucrative agricultural activity but it takes plenty of hard work and the right business model.

For Western Sydney couple Johnny and Christine, they look the long way around, wanting to build their turf farm business first before purchasing the land as part of a long-term investment.

Without their most recent financials, as well as the nature of property itself, paying a high interest rate from a private lender seemed like the only option until they spoke to one of our expert mortgage brokers.

The story

Rather than continuing to build on their residential investment portfolio, Johnny and Christine wanted to move into the lucrative turf farming industry.

Johnny had grown up on a farm and once he saw the 30-acre block for lease in Yarramundi in Sydney’s West, he knew it had the right soil and climate conditions to grow a sod farm.

For ten years, the couple worked the land and turned their passion into a profitable business.

Johnny and Christine knew the next step for them was to buy the land for themselves as a long-term investment for when they eventually sold the business.

Due to the cash transaction nature of the business, the couple had strong cash flow and felt they wouldn’t have any trouble qualifying for a commercial loan.

The problem

The first hurdle the couple had to face was the fact that they didn’t have their most recent years’ financials.

This is quite common for business owners and, luckily, there are low doc solutions available with specialist lenders.

The couple wisely decided to get professional help from a mortgage broker and contacted Dean, who they had known for a number of years.

Dean had visited their turf farm on many occasions and knew that they were running a successful business.

So, in lieu of their most recent Notice of Assessment, the couple were able to provide an accountant’s letter to verify their income for the current financial year.

Dean was able to get a conditional approval with a specialist lender relatively easy.

The lender charged a marginally higher interest rate but the couple were in a strong enough financial position to wear that extra cost.

The problem?

There was a $300,000 shortfall in the valuation because the lender wouldn’t consider water licences as part of the valuation.

Water licences for properties like farms and vineyards can be worth tens of thousands of dollars.

Exclude them from the valuation had a significant impact.

After the specialist lender, Dean enquired with a private lender that was not only going to charge 10.00% or higher in interest but they wouldn’t accept a turf farm as security.

The couple could have come up with a larger deposit to go with the specialist lender but they wanted to maintain their strong cash flow position as part of a strong business plan.

A clever solution

After explaining the situation to Johnny and Christine, Dean suggested that the couple speak to their accountant and complete their most recent tax return in order to get approved with a major bank that would accept a turf farm.

With guidance from their account, Johnny and Christine worked out that paying the extra tax was worthwhile in exchanged for getting a full doc loan at a much sharper interest rate.

After applying for the loan, the pre-approval came through.

The next step was the valuation and Dean knew he had one shot at the valuation.

His background as a real estate agent proved to be just the ticket to getting the couple approved.

The bank asked Dean to provide some details about the property to the valuer. Dean did a lot more than that!

He actually visited the couple at their turf farm and took plenty of photos.

Dean then completed a thorough report on the property (including the water licences), its improvements, and even compiled a list of comparable sales after speaking with several local agents.

Dean actually knew a lot of these agents already so they were able to provide some great insight.

In the end, the bank decided to rely on Dean’s report alone and approved the turf farm loan application!

A happy ending

Johnny and Christine got a approved at a sharp commercial interest rate on a 15-year term.

They were able to borrow up to 60% of the property value and, instead of providing a large deposit for the 40% shortfall, they were able to use the proceeds on the sale of a residential property.

They now own and run their sod farm and feel more secure in achieving their long term financial goals.

Do you need a commercial loan to buy a rural acreage?

Depending on the size and location of the property, and whether you’ll be earning more than $20,000 per annum (policy varies) from agricultural activities, you may actually be able to get a residential loan under hobby farm loan lending policy.

That means you can qualify for residential interest rates!

Please call us on 1300 889 743 or complete our free assessment form to find out how we can help you purchase your rural property.

  • SaCal

    That’s a great story. I’d like to buy a turf farm myself. How much can we usually borrow to buy the freehold?

  • You can generally borrow up to 60% or even 70% of the property value for buying a freehold turf farm. If you’d like to learn more about turf farm loans, please check out this page:
    https://www.homeloanexperts.com.au/commercial-property-loan/turf-farm-loan/

  • nall

    That’s a great story. I would like to buy a rural hobby farm myself but I was told by my bank to clarify a few things on my accountant’s declaration and I’m finding it difficult because they can’t discuss things with the bank directly because of legal reasons. Can your broker help though?

  • Thanks for your comment, nall. Many accountants will neither talk to the bank directly nor to a mortgage broker due to privacy legislation so you’ll have to request your accountant to write a letter for the bank. We have included text that you may need for the most common accountant’s letters on our accountant letter templates page so please have a look at them by following the link below. If you’re still not sure, you can call our office to discuss it with one of our experts.
    https://www.homeloanexperts.com.au/home-loan-documents/accountant-letter/

  • Walker

    I want to buy a small turf farm using a farm loan. I can provide financials including accountants dec and everything but I’m worried because my agent says the valuation may not be as anticipated. What happens if it comes up short?

  • Hey Walker,
    The purpose of the valuation is to protect you and the banks from any potential losses in case the property needs to be sold. What happens after a valuation comes in short depends on your situation. If you’re planning to purchase a property and the valuation comes in short, then it isn’t really a bad thing. It just means that the purchase price you’ve agreed on is above the value of the property. If the valuation comes in low it gives you a chance to re-negotiate with the seller.