Subdividing – line of credit loan…

Hi All,

I'm currently purchasing a 2br house on 1100m2 for $235k with DA APPROVAL for subdivision.

The subdivision will make the land of the existing home 450m2 while the new, rear block will be 650m2.

I'd like to finance via an "interest only" "line of credit" loan so I'm able to draw on the tax free equity each year subject to healthy valuations. (Suburb with 12% ave annual CG over 10 years).

The vendors will be renting back the property from me for 12 months and the purchase price and rental return is cash flow positive.

I will build either a 4br house on the rear block or a duplex if council permits.

MY QUESTION/S:

If I take an "interest only"  "line of credit loan" to purchase the property ($235k) then use MY OWN MONEY to subdivide the rear property (costs of driveway, fencing, council fees and 4br house build etc – 160k)… when the subdivision and house is complete and I have the bank revalue the NOW 2 properties – will the bank include the value of the new subdivided property and additional house as EQUITY INCREASE on the original house loan and valuation of $235k ?

Thus – if the NEW 4br hoiuse and property is valued at $250K and the original 2br house is now devalued to $200k (DUE TO LESS LAND SIZE) – the total value is now $450k. Thus – equity increase of $215k on the original $235k loan.

Can I then pull out that $215k equity increase – tax free – and pay myself back the $160k used to build the house and subdivide – leaving me with 55k equity – tax free profit to use however I wish ?

OR – would it be better to just have the bank loan me the full amount for the existing home and subdividing expenses and new home build expenses (they have pre approved the 400k approximate for all). Then have the bank revalue on completion at $450k – then pull out the 50k equity increase.

Notes: Bank has valued the existing property at the purchase price – 235k. Bank has valued the subdivision scenario as follows: existing house once land is subdivided: $200k. New subdivided land with new 4br house: $250k. Total new value $450k.

This is my first investment property and perhaps I'm trying to be a little too creative or ambitious, however – given the current status of my business and cash flow – I hope to buy an investment property every 3 months for the next 5 years – mainly properties with subdivision approval/potential with a long term strategy of hold two/sell one (based on buying older homes with subdivision potential – selling the existing older home and keeping the new duplexes for rental return, capital gain and depreciation benefits)

Hope some of you experienced investors may be able to assist me.

David.