Hi all,
I joined this forum whilst looking for a range of ideas and opinions based on my circumstance.
I live in a house in Morley WA with my partner ( stay at home ) and my 12 yr old daughter, I am 45 and earn around $87k / year whilst full time employed.
I have a mortgage of $80k on a property valued around $500k.
We have recently agreed to move into my partners mothers house ( she also lives in Morley ) as she has turned 80 and needs a bit of help nowdays, she has the perfect set up with a granny flat which she is moving into, my family and I will live in the main house, rent free, as my partner cares for her mother. We will live there indefinately.
This leaves out current house empty, and us with a number of options.
The house is 40 years old and high maintenance, I could rent it out and more than cover my mortgage but I sense this may be an opportunity lost.
I am considering knocking my house down and building 2 x units as I am zone R25 and my block is 731 sqm, this would be a $510 – $550k excercise based on what the builder has told me.
I expect the completed units would be worth $550 – $600k each and would rent for around $550/wk each.
This would leave me with a debt of around $600k but with around 50% equity in the new units.
My question is how best to structure the finance, I like the idea of interest only as the positive cash flow would allow further investment options, I am also unsure how any future CG would apply given that the land for the IP was originally from my family home.
Is my idea sound ? or am I better off just renting out my house indefinately.
Hi Stickers
Firstly welcome to the forum and i hope you enjoy your time with us.
Certainly financing such a deal needs to be carefully planned as getting it wrong could be expensive.
Construction loans involve progressive payments and the lender will charge interest on the outstanding amount.
In a standard build you would normally expect to have 4/5 draws until the building is complete so the loan increases over time.
You need to remember that the monthly interest will need to be serviced along the way until the property is complete and the units can be rented so you could either look to capitalise the interest during the construction or hold a cash buffer upfront to meet the monthly committment.
Then lender selection is important as you will have two properties on a single title and many lenders will either not like this at all or will limit the loan to valuation.
All lenders will be happy to provide interest only during the construction period but get your broker to give you some options to allow an interest only loan for a longer period as the with the equity and the added rent you could expand your portfolio fairly quickly.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
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