My PPOR is on a large block of land with enough space to build 3 units. I consulted a property development agent who said the cost of building the 3 units plus driveways, landscaping, fencing etc would be approx $650,000. It seems like there would be some good profit in doing this. However, as a single parent supporting 3 children on an income of $80 000 I don’t see how I could qualify to loan that sort of amount. I would appreciate some advice about creative ways to finance this idea.
It’s not impossible. How much debt do you have on the house?
3 units you can do as a commercial development and capitalise interest, so servicing is not such an issue. You can borrow up to 80% of the overall costs, including the land. As you already own the land, if you have sufficient equity to cover your 20% contribution it wouldn't be all that difficult to finance.
I owe about $65000 on the house, value approx 380 000. I also bought my first investment property recently, an NRAS house which is to commence building soon. Loan for that is 100% and will be about $33000, rent will be 340 week less 25% nras discount. Plus nras tax incentive 9140 per annum.
APerry, not sure what you mean about capitalising interest. Can you explain further?sorry typo loan for nras property is 330 000.
Hi Wendy
Alistair (A Perry) is an expert on development finance and has already given you some information so if you decide to proceed why not give him a shout and get him to assist you with the process.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Thanks for the kind words Richard. Wendy, the simplest way to explain capitalised interest is that you don't have to make monthly payments, the interest charge is just added to the loan amount. Lenders allow you to do this with commercail construction loans because there is debt clearance at the end of the contruction period through sales.
On the figures given, unless you get a decent uplift in the value of your property once you have a planning permit, you may struggle to meet the equity requirements of most lenders for a commercial contruction loan. It is very possible this will occur, but its hard to comment further without knowing more about the project and borrower.
Regards
AlistairHi Wendy,
How big were the units going to be for this price?
Are they single level?
I have a similar block of land that can be split
2 bedroom single level.
The price includes site works, landscaping, driveways, taking down a colurbond double garage to make room for the driveway to units
and moving it closer to my house.
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