Hi,
Just wondering if any one can give me some advice on obtaining Finance for building 2 townhouses at the rear of my property.
Will I need to subdivide the land for the bank to give me a loan? or can I get a construction loan if I give the project to a builder? not too sure what is the best way to approach the bank.
I purchased the property in Dec 2010 for $480 with a 3 bedroom house currently have a loan of $300k and I have the permits approved to build an additional 2.
Just need the finance now to build the other 2.
thanks
Hi, welcome to the exciting world of development!
You got two options:
1. Subdivide first
*If you do subdivide the bank will issue a new loan for each subdivision, ie if you have 3 titles = 3 separate mortgage/loans, all done within it’s own merits ( own LVR, valuation )
* If you go down this way, you can stay with the same lender or If you choose to shop around and find a new lender; you can potential have 2 new lenders each securing one portion of the land (one title each etc) —
* in regards to the construction; for the empty land- you would apply for a vacant land + construction – depending on which lender this is allowed up to 90-95% of the valuation/market value LVR2. Build first then subdivide
* You would have only ONE title- so only ONE lender securing property + the construction cost
* This option provides less flexibility ( explained below)
* Apply for a new loan ( some banks allow a split loan into your existing) ; the new loan would be a construction loan.
For both options, the bank will be fine with the construction as long as you afford to service the loan your after and you must have all council approval, fixed price quotes and plans set and ready before they will consider your loan.I would say option 1, is a far more superior option in term of protection, since im guessing this is your first development project. Reason i say that is; option 1 allows you to change lenders and find new competitive rate for EACH land ( so if you had problem with your current lender you can simple change it over) . Lastly if you gotten your self into some unforeseen financial problem; you can simply place one of the construction on hold or simply sell one of the land off to offset any short falls.
Regards
MichaelMick C | Shape Home Loans
http://www.shapehomeloans.com.au/
Email Me | Phone MeSame Banks. Better Rates. Served With a Passion.
Forgot to add: Depending on what your purpose is: ie build and sell? or rent out- it’s an good idea to speak to your tax accountant first if your planning on adopting the build and sell strategy as CGT would be potential be in play and if done correctly you could save thousands on CGT
Lastly either way make sure the new loan you apply for is a SPLIT loan- DO NOT add it to your existing PPOR loan – very important loan structure if you want to claim the full tax deductions.
Regards
MichaelMick C | Shape Home Loans
http://www.shapehomeloans.com.au/
Email Me | Phone MeSame Banks. Better Rates. Served With a Passion.
It depends on your serviceability of the loan, the property will be worth more once subdivided
even if its worth more after a subdivide ( most of the time it does) it won’t have any effect on the serviceability …it will only change the LVR.
If they can only afford to service a loan of $500,000…having your PPOR or IP go up in value…it doesn’t mean you gained any extra income to increase serviceability
Regards
MichaelMick C | Shape Home Loans
http://www.shapehomeloans.com.au/
Email Me | Phone MeSame Banks. Better Rates. Served With a Passion.
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