Hi,
I was wondering if anyone could let me know if my plan to build 2 townhouses is at all possible in my current situation.
I own a large block of land (in Mildura VIC) with an old house on it currently returning $170pw. With a mortgage of $118,000. Current value of this property (based on recently received offer) is $155,000.
I would love to build two townhouses on this land and keep both as rental properties.
However, I do not have any other savings or ability to put money towards construction, as I have been depositing as much as possible into the current loan to reduce it quickly. I could get my hands on about $10,000, that’s it.
I’ve read that most banks expect at least 20% of construction costs to be contributed by the owner, in my case this would be around $60,000 and is not possible.
Are there any banks or lenders that would:
1. Lend 100% of construction costs
2. Consolidate interest into the loan until construction is over
3. I estimate I will require about $300,000 to cover all costsHow is serviceability?
Live with parents
Income after tax $1600 per fortnight
No Credit cards or personal debt
Current mortgage repayments on land: $880pm
Projected income of 2 townhouses: $2600pmALSO, my current loan for the land is with a Queensland bank called ‘ Wide Bay’ . Does this effect who I can get the construction loan from? As another bank holds the title?
Sorry for my long winded question, I hope I have made sense!
Thank you just for taking the time to read, I look forward to any responses!
Cheers
AlexPs. I am prepared to go through an unconventional lender with perhaps a higher interest rate if that’s what it takes
You could get around 75% of end valuation on a Low Doc basis. Would have to change lenders tho. Since you already own the land, you may not need any further funds.
Terryw
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Thanks Terryw for your quick response.
I’ll talk it over with my partner tonight, and I will be in contact soon (if thats ok ) to see if we could maybe get the ball rolling.
Cheers
AlexYes you would certainly have to change lenders as i think for old Wide Bay Capricorn that would the biggest loan they would have seen across their desk in a while.
I am not totally convinced you would have to go lodoc so a full documented loan maybe possible.
As Terry mentioned you have some equity in the house so probably wouldn’t need to put your own cash to the deal and could use that to cover Council costs etc.
Cheers
Richard Taylor
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Hi Alex, congratulations on your progress. Sub-division & rebuilding multiple units on the existing block is a quick way to get increased equity. However, some points for you to consider:
1) Time costs: it's better to be VERY conservative on how long the project takes to complete. I was told it'd take 1 year & I doubled it & it's going to take 26 months.
2) Footing & infrastructure costs: demolition quotes can vary. Mine cost $4000 more than initially quoted. Then the engineers did a 'variations' on footings to the tune of $42000! I threw a fit & got someone else to do the footings. Still cost $20000 more than originally quoted.
3) Is it possible for you to build single storey cottage type houses? They're $50000 cheaper to build. Even though the end value may be lower, your profit margin may still be the same. The risk would be significantly lower.
These comments are meant to be helpful. They're not meant to put you off developing. It is the most meaningful thing I've done & the joy in seeing your houses being built is indescribable. Not to mention the profit that's possible. I encountered heaps of problems & yet the project I'm doing will increase my net worth by a hundred & twenty maybe fifty thousand.
If you can do some jobs yourself, your profits may be far higher than mine.
Good luck,
Kum YinHi Kum,
Thank you for your informative post.
After doing initial investigations on building costs, I agree single story seems the way to go. As my land is quite a good size (730sqm), I think I would still be able to get two decent size homes on the land.Point 1 & 2 are very scary notions as cost (especially holding costs during building) are an crucial factor for me.
Wow, 26months is a massive jump from 1 year. When you entered into the contract with the builder, was there any guarantee on the building time? I have heard this can be included in the contract (if the builder agrees) with a clause that they must pay compensation to you if the time goes over what was agreed.
Its great to hear that despite this you have still increased your net worth by such a large amount. Its is so valuable to hear from someone who has actually done what I hope to do.
Cheers Alex
Hi Alex, more 'stuff' for you to digest.
1) Minimum block size. Yours would be 375m2 each if the block is regular. Doable in most urban areas but check with local council, if you haven't already done it. The frontage is important. The minimum frontage for sub-division is around 24m for detached homes. In near city areas, you can get away with 2 attached homes on less than 20m frontage, 9m minimum for most areas.
2) I attended Martin Ayles seminar & this is what I've picked up from him. My houses all have ensuites. His don't. His reason – they cost up to $10000. His houses have double garages. Mine have single carports with roller doors. His reason is double garages add $30K in sale value. My reason – double garages cost $15K, single carport costs $3500. I want to peg my sale price at the median. My tentative or lowest asking price is $40K below what other people around me are asking. They are asking $30000 to $340K but haven't sold. I can sell @ $285000 & still make profit.
3) If your numbers show a profit around 20%, then you might just want to plunge in & hang the funding! I did. I borrowed $300K from private lenders without a clue how to get an extra $500K for building.
Note on 3) The risk is yours & yours only. You are the one to decide.
What I can share with you is that I took that 1st step against a lot of contrary advice from well wishers.
It's my 1st project & the learning I've gained from it! Even if I just break even (totally unlikely), I will still do it if I had to choose all over again.
As I write this post to you Alex, my agent was on the phone. The old people next door want to trade their house (old house, large block, wide frontage) for one of the houses I've built!
If this is not precession, then I don't what is.
Sorry to be long-winded but God bless your endeavours. Good luck,
Kum YinHi Kum,
This info has been VERY helpful.
1. Do u build remotely, or do u live in the area you are building in?
2. How did u choose a builder?
Thx,John
Hi Kum,
Just wondering…are you suggesting 26 months for subdivision and building?? Or once you have done all the subdividing & got your planning permits approved. Once thats done, how long to allow for building ie a duplex (2) townhouses?
Many thanks
ANNAAlex23, just a few questions. I live in Mildura and was wondering where your property is?
Have you had any professional quotes done?
Is there rear lane access or could you include the garages with the frontage?
Be mindful of the delay with land titles in Mildura at the moment (Town planning is swapped). I know this because I'm in construction and our company has been waiting for a while to start building houses in a new subdivision.
Building two houses joined together means there will be fire proofing required on the dividing wall.
Don't let this deter you, just get as much free information as possible from council to make sure you can go ahead with the subdivision before spending money on plans, permits and surveying.
Hope this information is helpful, good luck.
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