Can you switch from commercial mortgage to residential loan?

Take a step back. Your objectives should always be to maximise both the rental return of the site as a whole, and also the resale value of the site as a whole. I could be wrong, there might be something unique about the market in this particular suburb of yours, but generally I would expect that joining two one bedders to make a two bedder, would reduce both the rental yield and the site value. Take a really close look at what one bedders rent and sell for in your area, compared to two bedders. Do this exercise for both renovated and unrenovated properties.

While having less dwellings might make you eligible for a resi loan, it might hurt you more to be going down this path.

If the units were on separate titles, then each unit could have its own loan on resi rates. The site value would likely be higher because you could, conceptually, sell the units individually rather than as a package deal, which brings owner occupier buyers into the equation. The council would likely hit you with overall more council rates because they would revalue the site after subdivision and announce it is worth more and thus more rates are payable. If you are not already being hit for separate council rates per dwelling then you certainly would be after subdivision. Then there would be the matter of insurance which would also have to change.

If your objective is to renovate and sell relatively soon, then perhaps step 1 should be strata titling, with a rejig of the mortgage and insurance bundled into the mix. You could renovate after all that is done.

If you’re reducing to 4 on 1 title can certainly get it refinanced as a residential loan, we put quite a few of these through each year.

Jacqui has touched on an important consideration in that you carefully make sure the end result will be a better investment.

Good luck!

Hi Josh,

I am guessing that Westpac would treat each customer differently, my findings were that Westpac will make a Commercial loan compulsory for 3 or more units (ie: Only 1 or 2 units are in the Westpac Residential space).

I may have misunderstood you but it sounds like you were under the impression that Westpac will be OK with a Residential loan for all 3 units.

I found that only one of the big 4 banks did Residential loans for 3 or less units (Commercial loans for 4 or more) – that was NAB. I am not endorsing any banks in particular, just telling you what I think to be the case.
Best that you have some initial consultations directly with a broker as they will have up to date information for you & 4 banks are hardly an exhaustive list of the institutions that would set up loans. Some brokers have already replied to this post.

Also, it is great that you are thinking about how to improve your property position – I think that is key. Whether you move towards having 5 or 4 units will depend on the outcome of the numbers that you crunch & whether it gets you towards your goals. My advice would be to keep available as much buffer as possible (as an insurance, in the event that you may need it). Commercial loans do have their use – your circumstances have probably changed during the years – you have outgrown your loan and see a better possibility by utilizing a tweak. Welcome to property development – it’s never static, more like an evolution.

I hope this helps you.
Cheers & good luck.

Sorry Josh you are much mistaken as NAB certainly won’t look at a residential loan on 4 units.

There is 1 lender I am aware of that will look at 5 units on a residential basis subject to location of the block but in saying that a Commercial loan can often be charged at the same rate as a standard variable rate loan.

Cheers

Yours in Finance