Hi,
I have purchased a property in Gilles Plains South Australia and am currently in the process of sub dividing the land and demolishing the existing house, just wondering what is the best way to go about financing the construction project.
Once subdivided each block will be worth around 140k and will each have about 65k in finance, construction cost of each dwelling will be around 130k completed and estimated final value will be around the 320k+ mark. Not sure if it will be better just to refinance totally or just try to extend the current loan on the property which is a no doc loan.
Any advice would be greatly appreciated.
Thanks,
Cam
Dependant on the current lender is you may find that they will not do a construction loan as some nodoc / lodoc lenders will not.
Also hard to comment without any specific information on what you currently have.
Richard Taylor | Australia's leading private lender
Hey Cam,
We bought 1 in Gilles Plains last year and are currently building 2 homes as well. For that particular one we went through Westpac for the finance and they were fantastic compared to the other banks we've dealt with. They lent us 80% of the new improved land value (ie. the value of the 2 allotments as if they had already been subdivided) + 100% of the building costs which is pretty much the norm with most banks except Westpac were better than the other banks because they lent us the money based on just council approval and didn't require deposited plans etc which alot of the other banks do want!
We got a lowdoc through westpac but only downside is you can only borrow in your personal name…i.e. no trusts/companies etc.
not sure that i've answered your question directly but hope this helps in some way??
Cheers,
Kim
p.s. Our blocks are approx. 330m2 each and the bank valued them each at $115K. Your estimated end valuation of $320K may be a little high given that there's only 1 or 2 homes in the area that have sold around that price and they were above average sized homes. The majority of them are high $200K's (if your block is situated in the PAE Council but if its TTG Council then there are no comparables whatsoever) so i'd work on worst case scenario rather than the $320K just in case….only a suggestion
The other option is to go again with westpac but get a commerical loan called a EVL end value loan or Gross Realisation loan. This is similar to what Kim used but money is lent to a business name. The disadvantage of this is that GST is then required to be paid on the sale of the properties.
Kim, how did you get around having to borrow money on a commerical loan basis? It was my understanding that an end-value loan was really only able to be obtained for business purposes hence the end-value idea as for if you were buying a business or similar……
Currently we are (waiting to )go through westpac but with their commerical lending arm. Our bug-bear is that we will have to pay GST (as i said), which means on the sale of 18 homes we are building in Murray Birdge, the wonderful old GST cuts into the profits SOMEWHAT!!!!
Barney
GR loans have nothing to with the fact that GST is payable on the end product and a merely a mechanism to finance a development on value and not cost.
GST is calculated on the end sale price or margin price dependant on the project and has nothing to do with how the deal is financed.
Richard Taylor | Australia's leading private lender
OK thanks, however do i need to pay GST etc if i buy the properties in a trust/business name? What conditions are there thatmake me have to pay GST on the sale then?
Hi Barney,
If you are registered for GST, you can clim it back anyway. If there is a problem with the money upfront, Westpac should be able to set up a short term overdraft to pay it for you.
Regards
AlistairAs the final sale is an end of line sale in terms of selling from a business to a private, it was my understanding that in this end sale GST was not claimable. Is this incorrect?
The purchasers will be paying the GST when you sell, not you.
Hey Barney,
residential lend based on end val wasn't a prob with any of the banks….i think its a fairly standard for lend on end val to my understanding? They'll lend on new land value + 100% of hard costs.
we're registered for gst and we claim the gst every quarter through our BAS to help with cashflow….once we sell the homes we obviously need to repay this back to the ATO unfortunately
If you're building 18homes, this would definitley be the reason why you are having to go through the business lending path. Majority of banks do 3 or 4 max on residential before they start pushing you through commercial lending.
Kim
Excellent, thanks very helpfuol. Can you tell me what bank you are using? .At this stage we have had initial proceddings with Westpacs buisiness arm and they are (from what i have heard) reluctant to lend us what we want because we arent seasoned developers. We are now considering trying elsewhere.
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