I want to build two townhouses at the rear of my block then subdivide. I will keep the existing house. I plan to keep both of the new properties and rent out. I would like to borrow as much as I can in the development stage (I am income poor but asset rich) and then pay down the loans once rented out to a level that rental income matches expenses.
I am in initial discussion stages with some builders and they are suggesting that subdivision doesn’t take place until after the townhouses are completed. That gives some flexibility over boundaries etc. should they need to deviate from the initial plans during the building for whatever reason.
That would suggest to me that the development phase requires a different style of loan to post development, as there cannot be a mortgage over the title if the title has not yet been determined.
Am I right in this thinking? What types of loans are used for development? Once completed, how do I transfer the debt to the individual titles so that I can claim the interest as a rental expense?
If the townhouses are free standing, then there should be no reason why you couldn't subdivide once you had built the access/drainage/services to each site. You can't subdivide the block until the properties have been built if they are joined with a common wall.
Once subdivided, you will need either separate loans over each property or one loan over several properties (not advisable).
Sounds to me like you need a lodoc / nodoc development style loan.
Mortgage would be taken over the existing Title and then a construction style loan on the development with funds advanced in stage draws.
Have to be honest more information would be needed to provide a more concrete answer or recommendation.
Richard Taylor | Australia's leading private lender
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