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  • Profile photo of benofbrisbanebenofbrisbane
    Participant
    @benofbrisbane
    Join Date: 2007
    Post Count: 62

    Hi Everyone

     

    This is my position.

     

    I own a block of land with two x two bedroom freestanding units on it (one title).

     

    I have a DA to build two x three bed townhouses out the back and have the four units on community title scheme.

     

    I plan on refurbishing the existing two beds at the same time as build.

     

    I have budged about $450k – for the build and the refurbishment.

     I have been told that the bank will lend me up to 70% of value of finished product at about 8.5% and to get the val then I need to supply the bank with building plans (to calculate floor areas and to determine layout), a schedule of fixtures and fittings (to determine the quality of the end product), construction costs and building contract. 

    Can you tell me if what I have set out above is correct and if the 70% LVR at 8.5% is a good deal, which I think is going to be through CBS.   At 70% I shouldn’t have to put in any funds myself, but it might be a close run thing, so more is better.    8.5% sounds Ok to me I suppose considering risk, but obviously cheaper money is always better!!

    Thanks for your time.

     

    Cheers

     

    Ben

    Profile photo of Alistair PerryAlistair Perry
    Participant
    @aperry
    Join Date: 2004
    Post Count: 891

    With commercial contruction loans the actual interest rate is only part of the equation in working out the interest cost. CBA would be charging you a line fee of the undrawn potion of the loan limit as well, this is called a line fee and likely it will be set at about 2%.The 8.5% you have been quoted is pretty reasobnable, but if you are comparing it to other loans, make sure you take into account what is charged for the line fee, it can differ widely between lenders. Also, CBA charge the lower of 80% of costs and 70% of end value, and the 70% of end value is exclusive of GST.

    Regards
    Alistair

    Profile photo of Mick CMick C
    Participant
    @shape
    Join Date: 2010
    Post Count: 1,099

    For community title that’s not bad….a lot of banks dont like community title…so as Perry mentioned % rate is one thing, but how easy it is to deal with the lender and get what you want is important as well.

    Given that LVR is 70% , commercial rate of 8.5% i would say is good. But you best to plan for an exit strategy after it’s built…ie would the lender place you on their standard rate product? how much would it cost to swap etc…Because 8.5% for 1-2 years is ok…but for 20 years could be a bit painful given it’s 4x town houses only.

    Regards
    Michael

    Mick C | Shape Home Loans
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    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 12,018

    Agree with boys comments above.

    As Alistair has mentioned there is no point in getting excited over a interest rate a GR loan when you find you are charged a 1% Application fee, Commercial valuation at $2500, renogotiating fees ongoing fees etc etc.

    You may have well gone for a 80% cost Resi loan at 7% with limited costs.

    Be suprised how many of the Com Depts of the Big 4 try and push you towards business lending segment as it certainly benefits the Banks bottom line.

    Cheers

    Yours in Finance

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
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    Profile photo of benofbrisbanebenofbrisbane
    Participant
    @benofbrisbane
    Join Date: 2007
    Post Count: 62

    hey everyone

    thanks for your comments.

    Allistair

    I will keep an eye on the line fee – tks for the clarification re GST.   I had been advised differnt things by different people as to whether the 70% is the end product plus GST or not.   Just to clarify you say that the CBA will only lend the lower of 80% of costs or 70% of end value – which ever is lower.  So if the project is going to say costs $1 million, they will only lend $800K is that right regardless of end value?  I had thought that if the project was going to cost a million and the end val was say $1.4 million that they would lend me basically the full million is that not right?

    Michael

    I see your point re the change – I guess I had naively thought that once construction had finished that I would simply be able to convert the loan to the normal loan and obtain the usual interest rate – is this not the case?

    Richard

    I am happy to go with a resi loan, but the broker reckons that because there will be four units once constructed that the banks will only look at as a commercial loan. Is this not your experience?

    Thanks very much for your time.

    Cheers

    Ben

    Profile photo of Alistair PerryAlistair Perry
    Participant
    @aperry
    Join Date: 2004
    Post Count: 891
    benofbrisbane wrote:
    hey everyone

    thanks for your comments.

    Allistair

    I will keep an eye on the line fee – tks for the clarification re GST.   I had been advised differnt things by different people as to whether the 70% is the end product plus GST or not.   Just to clarify you say that the CBA will only lend the lower of 80% of costs or 70% of end value – which ever is lower.  So if the project is going to say costs $1 million, they will only lend $800K is that right regardless of end value?  I had thought that if the project was going to cost a million and the end val was say $1.4 million that they would lend me basically the full million is that not right?

    Michael

    I see your point re the change – I guess I had naively thought that once construction had finished that I would simply be able to convert the loan to the normal loan and obtain the usual interest rate – is this not the case?

    Richard

    I am happy to go with a resi loan, but the broker reckons that because there will be four units once constructed that the banks will only look at as a commercial loan. Is this not your experience?

    Thanks very much for your time.

    Cheers

    Ben

    You are correct, they will not fund over 80% of costs, and they won't fund GST as part of that. CBA's policy on development funding is quite clear in that it is the lower of 80% of cost, they usually will not go over 65% of end value, but there would be flexibility there because its only 4 units, this figure definitely is net of GST. All of the banks have policies rlating to the % of costs and % of end value and always fund the lower of the 2. NAB is the exception but they will only fund 70% of costs.

    Regards
    Alistair

    Profile photo of Mick CMick C
    Participant
    @shape
    Join Date: 2010
    Post Count: 1,099

    Block of 4 only can still be done as residential; but the LVR will be capped at 65% ( no GST, no soft cost) — 65% of fixed price contact.
    If you want a higher LVR, or GST + soft cost to be included then commercial is the easiest way.

    Also NEVER presume that your loan will convert to a standard rate after…because it may not; always plan ahead.
    Reason why it may not change to normal product/rate:

    1. The lender under their resi policy dont allow muti unit on one title.
    2. Lender’s policy
    3. Depending how your using, some lenders dont like to refinance from “non-conforming products/lenders”
    4. Some may not refinance a commercial loan to a resi loan ( even internally)

    So make sure you have a plan set one which lender or product to swap to; after construction.

    Regards
    Michael

    Mick C | Shape Home Loans
    http://www.shapehomeloans.com.au/
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    Profile photo of benofbrisbanebenofbrisbane
    Participant
    @benofbrisbane
    Join Date: 2007
    Post Count: 62

    does the 80% of cost include land – because at the moment i have borrowed around 105% and am looking at another $450k for the build.  So around a million all up – does that mean that they will only lend me $800K? Even though it would be worth $1.3++ after construction.  This seems rough.

    Profile photo of Mick CMick C
    Participant
    @shape
    Join Date: 2010
    Post Count: 1,099
    benofbrisbane wrote:
    does the 80% of cost include land – because at the moment i have borrowed around 105% and am looking at another $450k for the build.  So around a million all up – does that mean that they will only lend me $800K? Even though it would be worth $1.3++ after construction.  This seems rough.

    i wouldn’t say it’s rough…just being safe. But under commercial lending policy they will look at End value ( so can borrow more) , While most resi only looks at contract value till it’s completed.

    Regards
    Michael

    Mick C | Shape Home Loans
    http://www.shapehomeloans.com.au/
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    Profile photo of Alistair PerryAlistair Perry
    Participant
    @aperry
    Join Date: 2004
    Post Count: 891
    benofbrisbane wrote:
    does the 80% of cost include land – because at the moment i have borrowed around 105% and am looking at another $450k for the build.  So around a million all up – does that mean that they will only lend me $800K? Even though it would be worth $1.3++ after construction.  This seems rough.

    They will use land value as part of the cost side of the equation, so if you have had an uplift from getting a permit, that forms part of your equity.

    Regards
    Alistair

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