Hi
We (my husband and I) are considering purchasing our 2nd IP and are thinking about buy, sub-divide and develop, or buy & detonate and sub-divide and develop 2 houses… or buy, rent out while getting sub-divide approved etc etc…
Our question is, what is the best way to finance this kind of property development project, if we are relying on help from our bank/financial institution? Do banks generally finance the intention to buy, detonate, sub-divide and rebuild (2 houses, 1 on each sub-division)? If they do offer finance for this situation, what are the general rules/guidelines/pitfalls? What will the bank expect of us… what will we need to have in place, to be eligible, for a bank to support this situation?
What knowledge do you (the people in this forum) have about this topic? What are your own experiences?
Thanks in advance and appreciated.
How many are you building?
What are you building?
Zoning?
How much?
What LVR?Regards
MichaelMick C | Shape Home Loans
http://www.shapehomeloans.com.au/
Email Me | Phone MeSame Banks. Better Rates. Served With a Passion.
Shape wrote:How many are you building?
What are you building?
Zoning?
How much?
What LVR?Good questions Michael … not sure I can answer them.
We are justing about the possibility of buying an existing property (eg 1 house on a good sized piece of land) and building 2 or 3 houses/villas… we see this being done quite a bit in Adelaide. Or simply sub-divide and build 1 new house on the new sub-division to either sell both or sell one and keep one as a rental.
Zoning? Are you asking where we are thinking to investing or are you asking what are the zoning restrictions… not sure I understand (we are very new at this so still learning the language/shorthanded wording).
We are thinking of properties with a maximum purchase price of $400,000 (not including associated costs, fees etc.).
LVR… borrowing 90 ~ 95%.Any advice for us newbies would be greatly appreciated.
Thanks
Hi Dragonfly
Being a mortgage insured loan i think it is unlikely you will get 95% so realistically assume a max loan of 90%.
Whether you can subdivide the land before you build will also influence the lvr as a lot of lenders dont like multiple units on the same title but all in all as long as the rest of the application is strong i think the deal is doable.
Course assumes the zoning of the land is residential or similar.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Hi,
As Richard mentioned, you wont be able to go to 95%; especially given you have no experience in this field, 90% would be your max.
Existing land purchase- developmental/subdivide is not only common in SA; but also in NSW, QLD and VIC.The easiest way to do this is to;
1. speak to townplanner and bridge a connection with a team of “people” you need- to make sure it;’s do-able and also what the requirements are for the new purchase2. Buy property – declare rental income
3. SUBDIVIDE FIRST …that way you have a vacant land you can start fresh and can go to ANY lender you like (one that works to your needs) — + if anything goes wrong you have the ability to offload the existing home + you don’t need permission form tenant to gain access as it’s separate places + that way the lender will apply the construction of a duplex
4. Apply for construction loan.
Note: i would not build 2-3 villa (beside duplex) as any more then 2+ is considered as Commercial loan OR the LVR will drop quite a bit + being your first construction start off small…larger the development the larger the fall out potential/budget
Zoning- it’s more if it’s commercial or residential + for the DA process
Regards
MichaelDragonflyz wrote:Shape wrote:How many are you building?
What are you building?
Zoning?
How much?
What LVR?Good questions Michael … not sure I can answer them.
We are justing about the possibility of buying an existing property (eg 1 house on a good sized piece of land) and building 2 or 3 houses/villas… we see this being done quite a bit in Adelaide. Or simply sub-divide and build 1 new house on the new sub-division to either sell both or sell one and keep one as a rental.
Zoning? Are you asking where we are thinking to investing or are you asking what are the zoning restrictions… not sure I understand (we are very new at this so still learning the language/shorthanded wording).
We are thinking of properties with a maximum purchase price of $400,000 (not including associated costs, fees etc.).
LVR… borrowing 90 ~ 95%.Any advice for us newbies would be greatly appreciated.
Thanks
Mick C | Shape Home Loans
http://www.shapehomeloans.com.au/
Email Me | Phone MeSame Banks. Better Rates. Served With a Passion.
Thanks Michael… what is involved with a construction loan… how is this seen to be different from the banks point of view to the ‘original’ mortgage/loan for the property? SSorry if this seems like a very basic question, but this is all new to us and we are keen to learn as much as possible so as to make an informed/researched decision.
Dragonflyz wrote:Thanks Michael… what is involved with a construction loan… how is this seen to be different from the banks point of view to the ‘original’ mortgage/loan for the property? SSorry if this seems like a very basic question, but this is all new to us and we are keen to learn as much as possible so as to make an informed/researched decision.No real difference; as a matter of fact we use the same application form, same cal for serviceability, same product ( most of the time).
The only difference is:
1. Rate- SOME, i stress some…will have a loading rate during the construction stage – 0.1-0.2% more — note the bank makes the same amount of money from construction loan and normally loans….but construction loan are longer/risker and more paper work
2. LVR is lower – hardier to achieve a 95%
3. LMI provider do not like LARGE + muti construction …building 1 house or a duplx is fine
4. You need to have some spare cash for any short falls- expected.
5. Instead of one valuation, the bank will be doing multiple – 3+ valuation during construction
6. Progress payment instead of lump sumSo really the loan ” process ” is the same; but getting your loan ACCEPTED is a different matter-you do have to be a bit more creative as there are more requirements/tricks; not something i can list on a forum as it’s pages and pages long based on the lender and client’s situation.
Regards
MichaelMick C | Shape Home Loans
http://www.shapehomeloans.com.au/
Email Me | Phone MeSame Banks. Better Rates. Served With a Passion.
Thanks everyone… your posts are appreciated and have been a great help in allowing to begin to understand the whole develop/sub-divide process. If we have any further questions we will be sure to ask.
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