Hi friends
I’m building a duplex, and my loan is the same as a normal property investment loan. The interest rate is about 5% or whatever.
ANZ say they will treat up to 4 houses on one title as a normal property investment loan.
What I would like to know is what will happen if I were to build for example 6 houses on one title, and need commercial financing?
What are the differences? Are the rates higher? And will I definitely need a deposit? I didn’t need a deposit at all for the construction on my one.
Thanks
ANZ is the worst lender for multi unit construction under resi lending. They have a max LVR of 70%.
If you are talking construction and 4 units on a single title then only Bankwest, RAMS and Heritage will lend to you under resi lending. Max LVR would need to be 80%.
RAMS would consider 5 under a single title but case by case and it must be a strong application. Anything over 5 is consider commercial.
IR is not going to change – LVR is the big thing that varies.
Also remember that under resi lending – your biggest problem is going to be valuation as its valued in one line rather than end value.
TheFinanceShop | Elite Property Finance
http://www.elitepropertyfinance.com
Email Me | Phone MeResidential and Commercial Brokerage
How about which banks are more considerate then others when it comes to accepting different gst figures then a standard 10 percent.
Ie when calculating their in one line net of gst approach.
Say 1.7 mil end value. They go take off 10 percent – 170k. This is a bit cut and dry over the top in my opinion and is more then the gst which would be applicable under a margin scheme approach. Where the build gst is a least discounted off the 170k gst (say build contract inclusive of gst = 900k / therefore gst = 81k ish).
Couldn’t your account prove in a letter or doesn’t your build contract prove that their is a portion you would at least claim back as gst credits.This would add a additional 80-90k back Into the transaction before taking off profit percentage and calculating Loan at 65-70% on that figure.
ANZ is the worst lender for multi unit construction under resi lending. They have a max LVR of 70%.
If you are talking construction and 4 units on a single title then only Bankwest, RAMS and Heritage will lend to you under resi lending. Max LVR would need to be 80%.
RAMS would consider 5 under a single title but case by case and it must be a strong application. Anything over 5 is consider commercial.
IR is not going to change – LVR is the big thing that varies.
Also remember that under resi lending – your biggest problem is going to be valuation as its valued in one line rather than end value.
Thanks for your response – much appreciated. I wish my broker had’ve sent me to one of those banks then, because I could’ve saved 6 months.
So with commercial lending, what would a typical LVR be for a multi-unit construction (e.g. 10 units)?
Have you thought about splitting the title which could then keep it under resi lending which you could stage?
Kylie Walsh | PPI Investment Advice
http://ppiinvestmentadvice.com.au
Email Me | Phone MeLicensed Property Financial Advisors who provide Tailored Property Advice and Solutions
Hi Alfresco
A bit of time has passed since you posted your questions but I thought I would answer nonetheless.
Some key concepts of ‘commercial’ development funding:
– Presales – banks will typically require a level of presales prior to funding construction. As a general rule net sale proceeds (sale prices less GST and selling costs) will need to cover say 50% of the debt limit. There are funding options without presales but in your question about the difference in this type of funding, this is a key consideration.
-Leverage – commercial construction funding works of two lending ratios, that of Gross Realisation (exclusive of GST) (GR) and of Total Development Costs (TDC). Again, each lender has different policy on this but typically lending is capped at the lower of 80% of TDC (this includes land value, construction costs, contingency, professional fees and interest provision) and 65% of GR.
– Loan term – 12 months compared to 30 year residential loan term. These facilities are set up to get the project built with repayment upon completion via sale of the completed stock or refinance to a longer term investment facility.
– Interest Rates – the way this is structured is usually driven by the loan size. For smaller development loans this can be a straight interest rate, say 6% to 7%. For larger loans this will be split between interest rate (charged on drawn balance) of say 4.5% and a line fee (charged on the loan limit) of say 2%.
– Interest – interest during construction is capitalised (added to loan balance) during construction rather than met monthly
– Other costs – valuation reports are more expensive, think $5,000 rather than $500 and you will likely also require a quantity surveyor to certify progress claims say $3,000 for upfront report and $1,000 per claim.
The above is just a very broad picture and each of these points can be dissected further. Let me know if the above raises any further questions.
Cheers
RhysRhys Adams
http://www.redcommercial.com.au/
Email Me | Phone MeCommercial Property and Construction Finance Specialist
You must be logged in to reply to this topic. If you don't have an account, you can register here.
