Evening all,
I have subdivided block, that should have building plans approved in the next couple of weeks from council.
The approx cost to build is 200k
The block is 1000sqm with each block around 500sqm each. The front block has a renovated house on it currently rented.
I paid 420k for the entire lot with the front house being valued at around 350k.
As an example how would the bank fund a fixed price contract for 200k to build, and how much would I need to front up.
I also am looking at a property near Bendigo, VIC. This one 220k, 1680sqm, subdivided x 3 with an existing house rented and approved building plans for 2 x 2 bedroom units – approx build cost on these is 115k each – If I was to purchase this block and build how would a bank fund and what would they expect from me.
Any thoughts appreciated.
I should add that the loan on the 1st property is 350k.
cheers
Paul
Hi Paul
Ok one step at a time.
Firstly i hope your current lender allows for multiple dwellings on the single Title as i assume you wont get a separate Title until the dwelling is completed. Reason i mention this is many will not.
Assuming this hurdle is out of the way then the Bank will value the 2 securities being the existing house and separate block of land and will lend against this. They will advance upto 100% of the construction price and release this in stage payments directly to the Builder.
With regards to the new property the same mathematics would apply. Percentage lend against the initial price and then post development approval a percentage release against the Fixed Contract price.
Again you need to ensure the lender will allow multiple properties on the 1 Title.
Richard Taylor | Australia's leading private lender
Hi Richard,
My current loan for the 1st property is with ING. How are they on multi dwellings?
cheers
Paul
Hi Paul
Off the top of my hear i think you will have a problem.
Many lenders do have an issue unless the land has a separate Title and in most cases you wont get this until building has been completed.
Some lenders will do upto 3 dwellings on the same site but will limit the lvr to 80%.
Richard Taylor | Australia's leading private lender
Hi Richard,
Thanks fo your help, I will need to do some investigating. I will post back here when/if things are sorted
Cheers
No worries Paul.
Richard Taylor | Australia's leading private lender
Hi Richard,
I spoke to my broker that was aware of my plans last year when I purchased this particular property; he was quite sure that the banks are OK with subdivided dual occupancies. It would seem that it all depends on the amount of units that you plan to build.
I imagine that a 3 unit development would be OK (one unit already existing)…
And you are right, you don't get the title until after you have completed the subdivision plan (i.e. completed the building to the councils requirements, signed off by the surveyor)
Cheers
Hi Paul
Think he might want to check on the updated policy.
Looked for a client recently and was suprised how many lenders said NO.
In a multi unit dwlling situation 4+ is the magic number but not necessarily for construction.
Richard Taylor | Australia's leading private lender
Hi Richard,
No worries; You have raised my alert level, as this is my first attempt at subdivide and build. There will be hurdles and this is just another one; I have other options if required, but not my preference.
Either way, I appreciate you comments.
Cheers
Paul
I tried to do one like this with Westpac recently under a low doc. Bank said ok, and then the mortgage insurer knocked it back because of the 2 on 1 title.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Terry you are bang on.
Westpac are not alone and certainly talking to a couple of other lenders their mortgage insurers have said a big fat NO.
Richard Taylor | Australia's leading private lender
Can I ask gents, how does one go about funding a subdivision if the banks are not allowing people to fund the construction via normal lending channels
Cheers
Hi Paul
Couple of ways.
1) Use a lender that still allows it.
2) Do it as a Commercial Development. This unfortunately means additional costs, higher interest rates and lower lvr.
Richard Taylor | Australia's leading private lender
Thanks Richard,
Have the rules changed as a result of the GFC?
My broker seemed confident that there would be no issues… I called him today and asked. I'm not disbelieving you, I'm just worried that my broker may have not funded a sub division recently and as a result is not aware of any changes.
Cheers
Have the rules changed as a result of the GFC – Yes Dramatically along with many other policies
Richard Taylor | Australia's leading private lender
Yeah I've taken 2 new loans in the last 6 months and did notice they fluffed around a bit more with the detail than usual.
I'd just assumed the banks had become more dubious about who they lent to; which would make sense.
I shall just have to wait and see I guess.
Cheers
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