Hi Everyone,
quick question- I'm planning on building a 3 bedroom unit in Melbourne at the back of a property and planning on keeping front and back dwelling to rent. Is it worthwhile subdividing or doing it once I'm closer to selling in the future?
Are there any pros or cons in not subdividing and keeping both properties on the same title? One negative if you don't subdivide that comes to mind is the bank can use the back unit as security as it is on the same title as the front property.
Thanks
That is one big negative. Also, you actually end up completing a lot of the work required to subdivide as you build e.g. connection of services and stormwater. If you build only 2 on a block there is no Open Space Levy either. So for the sake of a few thousand bucks why wouldn't you subdivide??
Oscar
Hi Oscar, that makes sense. Any idea roughly what a subdivision costs? I’ve allowed about $15k.
2 units site, change from $10k
i did a duplex in Townsville $660K cost to buy new build
$12,000 strata title cost
revalued at $360K each
Worth it
JMS, you will require the Banks consent to subdivide the property anyway and unless the front block has bags of equity and values up post subdivision you may find that they either want cash to reduce the initial loan or other equity from the back block anyway.
In saying that many lenders do not accept multiple securities on the same Title so you may have to refinance or reduce the lvr anyway.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Hi Richard, say if I was to build the unit first, subdivide once complete, could I use the equity in the unit to reduce my lvr for the front property. I guess worse case scenario is I won’t subdivide till the lvr is much lower.
Also, would i need to inform the bank that i intend to build a unit in the backyard?
Hi Joe
Any change in the Banks security you would need to disclose it so hate to say Yes.
If you were paying cash or not using the property as security for the loan and it would only enhance the lenders security.
Normally the way we do these for clients is get a valuation based on the front block only post sub division and then if it means a cash injection to reduce the lvr use a standalone loan on the rear block which covers the cash injection as well as the construction cost.
Some lenders will want you to lodge a plan of subdivision showing that the property will have separate Title before they consider the construction funding.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
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