All Topics / Finance / Subdivision Finance – Advice Wanted

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  • Profile photo of fredo_4305fredo_4305
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    @fredo_4305
    Join Date: 2009
    Post Count: 336

    Hi All,

                 I haven't been on here for a while but good to see the forum is still thriving. Im after peoples thoughts on what could be done about the following scenario.

    Property is located in QLD. Purchased for 315K 2011. Bank Val for finance was 375K however they only took contract price for the Valuation. Have had the property since and only 315K. Other similar properties in the area have sold for high 300s. 

    Property is on 1022 SQM on two lots. 3Br 1 Bath.

    I have got subdivision approval or to be specific a lot reconfiguration as there is technically already two blocks.

    Operational Works council contributions consultants etc etc  for the Sub Div will cost approx 50K. I have also had some quotes to build, in which the price includes all of the subdiv works for 300K. Sale price 460-480K. Rent for 440 PW.

    Basically I have no funds to do the sub div and then mortgage the land for the build. My two other investment properties are cross secured and got a pounding in the floods, so no equity to be found here.

    Is there some way to get the finance for the complete build and get the sub div signed off at the end? So inessence borrow 95% of build costs which would include sub div works?

    Profile photo of TheFinanceShopTheFinanceShop
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    @thefinanceshop
    Join Date: 2012
    Post Count: 1,271

    Situation deserves a longer answer but im going to paraphrase. You can borrow up to 95% with most lenders depending on a few things such as ANZ can only go up to 70% if you have 2 dwellings on one title or Westpac will lend to 95% but only for loan amount of up to $1mil. You will not be able to borrow funds for the subdivision as part of the construction loan at 95%. You will need to borrow this separately from against another property. 

    Its a bit of chicken and egg but you will need to get some estimates to get the ball rolling. Then I would consider unlinking the securities, doing upfront valuations if possible (depending on the lender) and then devising a plan of attack from there. E.g. what type of equity do I have and will this be enough to fund the construction and subdivision. The lender will also require a builder's tender as part of the application progress. Will the subdivision stage occur before construction or after construction?

    Regards

    Shahin

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    mattnz
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    @mattnz
    Join Date: 2007
    Post Count: 574

    There shouldn't be council contributions when reconfiguring the lots, as you are not creating new lots.

    Profile photo of fredo_4305fredo_4305
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    @fredo_4305
    Join Date: 2009
    Post Count: 336

    Not so much contributions but there are fees etc.

    As for the subdivsion works should be able to be included in the construction, im talking about the hard costs ie driveway, water, electrical, fences etc. They are part and parcel of a new house. im happy to pay the fees consultants.

    Subdiv can occur whenever pending I get my hands on funds either for subdiv or complete construction including subdiv.

    Profile photo of TheFinanceShopTheFinanceShop
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    @thefinanceshop
    Join Date: 2012
    Post Count: 1,271

    Ok those 'hard costs' are part of the construction tender so therefore no issues going to 95%.

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    Profile photo of Richard TaylorRichard Taylor
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    @qlds007
    Join Date: 2003
    Post Count: 12,024

    Coming in late on the post I would make a couple of comments:

    Firstly I am surprised the Bank valuer placed a valuation of some $60,000 more on the valuation than the Contract price but these things do happen. Good if the Bank gave you a copy upfront so you can go back to the original valuer for the increase.

    Subject to the valuation figure i cannot see any reason why you can't finance 100% of the total build cost.

    I have just had approved a 100% funding for a 3 lot subdivision for another forum member here in Brisbane and whilst that took a while to get over the line helped as we worked with the valuer.

    Course in saying all of this it will depend on the actual numbers so without that difficult to comment further.

    Cheers

    Yours in Finance

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
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