Hi,
We are hoping to get into the investment market by developing our 780 sq mtre block. Demolishing our current cottage. We have had house and land valued at 400K. We have or P&I mortgage for 320K. We would like toborrow 450/500K to build either two 3/4 bed villas – detached one facing front and one facing driveway to back properties. OR the same attached and running the length of the property with a common wall down the middle.
We are struggling on the LVR as most lenders seem to calculate the value at land + construction. If we can get a lender to value on completion or off the plans we could get under the 80% LVR required. But struggling on the land + construtcion method.
So theree questions –
1)are there any lenders that will base the LVR on completionvalue
2) is a detached strata building concept going to have a higher resale than the attached option with a common wall
3) do building costs decrease with a common wall as opposed to detached.Appreciate the feeback in advance. It is a tricky first step we are considering. Hopefully once we do this we have enough equity on the one we are goign to live in to carry in investing.
Hi,
Sorry I'm not going to comment on the finance part, I'll leave that for Richard and Terry.
Where is the site? depending on where it is having separate dwellings may have higher resale. The other thing is depending on where you are you may be able to get 3 dwellings on it. I know this adds a whole other dimension to it such as having to borrow more for building and that sort of thing but it might be worth checking it out. The only problem I have with only doing two is that they will be basically worth the same as the loans you have on them when all is said and done. Either that or townhouses are selling for awesome prices like 600k and up in which case I'll be there too! Just some thoughts. Have you approached a planner to see what you can fit?
Let us know how you go.
D
DWolfe | www.homestagers.com.au
http://www.homestagers.com.au
Email MeYes there are lenders that will lend on the gross realisation of the completed project however one issue i can see is that when you knock your current house down for a period of time you will only have the land and this may well be worth less than the current mortgage.
This will make lenders nervous however as anything without more information difficult to give you a definate Yes / No answer.
Richard Taylor | Australia's leading private lender
Richard is right. It is a very scary part of the project when you do not know if they have done the valuation yet (grrr banks) and you have already knocked the house down! Won't be doing that again.
D
DWolfe | www.homestagers.com.au
http://www.homestagers.com.au
Email MeDWolfe wrote:Hi,Sorry I'm not going to comment on the finance part, I'll leave that for Richard and Terry.
Where is the site? depending on where it is having separate dwellings may have higher resale. The other thing is depending on where you are you may be able to get 3 dwellings on it. I know this adds a whole other dimension to it such as having to borrow more for building and that sort of thing but it might be worth checking it out. The only problem I have with only doing two is that they will be basically worth the same as the loans you have on them when all is said and done. Either that or townhouses are selling for awesome prices like 600k and up in which case I'll be there too! Just some thoughts. Have you approached a planner to see what you can fit?
Let us know how you go.
D
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Thanks D,
A bit nervous about doing two – let alone three. I don't think we have enough equity to stretch to three. It is possible my mother would go guarantor with her house but that also makes me nervous. Once we get to DA apporval (wollongong council – NSW) as the bank pays the builders I can't forsee any reason for things to go pear shaped – except one of us losing our jobs I guess. Then we can't service the loan.
We plan to keep one and get a new house out of it – so even if we only break even that would increase our equity and value of our property we keep.Qlds007 wrote:Yes there are lenders that will lend on the gross realisation of the completed project however one issue i can see is that when you knock your current house down for a period of time you will only have the land and this may well be worth less than the current mortgage.This will make lenders nervous however as anything without more information difficult to give you a definate Yes / No answer.
Thanks Richard,
your correct – the mortgage would be close to or a bit more than the land only value. If you have any suggestions of lenders I would apporciate that in a PM as I suspect your not alowed to post here.Cheers.
Hi Again,
I will tell you this as your friend. That means I will be as nice as possible when I say………………………………………………………………………..NOBODY DEVELOPS JUST FOR FUN!
I would caution about spending 18 mths and a lot of money on doing a development that would give you basically the same end value as all of your costs and that may even push you into negative equity. When you don't build in a healthy profit margin, you are left holding the bag.
You have said above that the bank pays the builder anyway……….Why can't the bank pay for 3 units rather than 2? If you cannot get any more than 2 units on your site because of minimum block size or whatever then fine, cool, whatever but in that case I would either get a DA and flog it off for more money or sit tight on the block with or without DA until some huge jumps in price happened then begin building.
From what I can find (in my 30 second search) there isn't much going on above the 450k mark for townhouses. Please correct me if I am wrong.
2 units build 500k plus land 400k = 900k, sell price (I know you are not selling) 450k each 900k. Umm that makes $0. No equity. 18mths work for nothing. There may be cost blow outs on the build, time blow outs while the block has nothing on it, costing you money. What happens then when it really ends up costing 600k build costs etc and you have 100k negative equity? You may as well have gone and just bought some more negative geared properties.
3 units. 400k land, 750k build/planning (may need more for interest and some final finishes on landscaping etc) 3 sell price @450k each = 1,350,000. Cost (very rough and very bullish) 1,150,000. Profit $200k (hopeful figure here). I know I would probably go for 200k over $0 every day of the week.
If you cannot get 3 on the site by all means get a DA and then flog it off maybe for a nice profit of $100-150k over what you would get without it. Depends on how gangbusters development is going up there. Then get your hands on another site that you can get a healthy profit out of.
I am not telling you not to do this. I am asking you to please think about your own sanity and how you will feel if in 18 mths time you have 2 new houses and then find out they are not worth the money you have borrowed for them and also it has taken 18 mths of your life. Please take this post in the spirit of helping each other that it is meant.
Good luck
D
DWolfe | www.homestagers.com.au
http://www.homestagers.com.au
Email MeCurrently selling newly constructed 3 bed villa two doors up for 520K. We will be selling a detached (only joined by the yard/Fence) 4 bed with double garage. So hopefully all this will be worth while and even then we have increased the equity we have even if we break even.
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