How do I make sure my loan is classified as a hobby farm loan?

Any general questions you might have in regards to loans and finance.
Jim
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Joined: Wed Mar 13, 2019 3:00 pm

How do I make sure my loan is classified as a hobby farm loan?

Postby Jim » Wed Mar 13, 2019 3:01 pm

Hi, I’m looking to purchase a lifestyle block that’s 25 ha, 100km south of Sydney in Jervis Bay. How do I make sure my loan is classified as a hobby farm loan instead of a commercial farm loan?

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Otto Dargan
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Re: How do I make sure my loan is classified as a hobby farm loan?

Postby Otto Dargan » Wed Mar 13, 2019 3:31 pm

Hello Jim. Welcome to the forums.

Hobby farms or lifestyle blocks are generally considered by banks to be non-income-earning rural properties. Strictly speaking, hobby farms are not for the purposes of turning a profit. It’s the reason why land that is upwards of 100 hectares or more is not considered to be a hobby farm.

If the bank identifies that you may be using the hobby farm as your sole source of income, you’ll need to apply for a commercial farm loan instead.

Banks generally look at the size of the property and your sources of income to determine whether it’s a hobby farm or a commercial venture.

You can borrow up to 90% of the property value for properties between 10-50 hectares (ha) with a hobby farm loan.

Speak with one of our hobby farm specialists by calling 1300 889 743 or by filling in our free assessment form to find out if you qualify for a hobby farm loan.

Cheers,
Otto Dargan
Mortgage Broker
P | 1300 889 743
Home Loan Experts

Jim
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Joined: Wed Mar 13, 2019 3:00 pm

Re: How do I make sure my loan is classified as a hobby farm loan?

Postby Jim » Wed Mar 13, 2019 5:23 pm

Ok. So, when is a rural property considered income-producing?

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Otto Dargan
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Re: How do I make sure my loan is classified as a hobby farm loan?

Postby Otto Dargan » Wed Mar 13, 2019 6:57 pm

Hi Jim,

The test for most bank valuers when determining whether a property can be considered income-producing is to check if there is an ability to offset business losses from a farm against other income.

Typically, this is where:
  • Turnover from the business activity is at least $20,000.
  • The business has produced a taxable profit in 3 of the last 5 years including the current year.
  • The value of the property carrying on a business is at least $500,000.

If you intend to develop the property for significant agricultural activities or if you need some of this income to prove that you can afford the loan, then it’s likely that the valuer will class the property as income-producing.

Cheers,
Otto Dargan
Mortgage Broker
P | 1300 889 743
Home Loan Experts

Jim
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Joined: Wed Mar 13, 2019 3:00 pm

Re: How do I make sure my loan is classified as a hobby farm loan?

Postby Jim » Wed Mar 13, 2019 7:52 pm

I’ve checked the postcode restriction for Jarvis Bay, however, if we do decide to go with a different property. Are there any location restrictions I should be aware of?

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Otto Dargan
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Location: Sydney, Australia
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Re: How do I make sure my loan is classified as a hobby farm loan?

Postby Otto Dargan » Wed Mar 13, 2019 7:53 pm

Hi Jim,

Like buying any other type of property, some lenders have location or postcode restrictions.

However, you should also be aware of zoning laws and how this can also affect your borrowing power, even if you have no intention of running a commercial operation.

We have some lenders who are less conservative when it comes to rural property location so give us a call on 1300 889 743 or fill in our free assessment form so one of our home loan specialists can tell if you qualify for a hobby farm loan.

Cheers,
Otto Dargan
Mortgage Broker
P | 1300 889 743
Home Loan Experts


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