Hello all,
Just wishing to get some feedback / advice on current understanding and lack of in the area of finance for subdivisions.
Plan:
Purchase property in which it can be subdivided and both properties sold.Finance:
I have been putting the plan together and i am having trouble finding finance. I’d admit that i haven’t gone to the big banks, but have been doing research on loan packages.I have identified that the loan can be called either a construction loan or a residential development loan. My current understanding is that a residential development loan would be the better option as this would normally provide lower rates and charges.
Can someone confirm or give advice as to what would be the names of appropriate loans for my strategy?
I did speak with a person finance company a few weeks ago and explained the project. They informed me that they will only lend based on the current value of the property and not the projected sale price of the new titles / properties. This in my eyes left a gaping hole for the subdivision costs.
My current belief is that i should be able to find a loan that will allow me to purchase a property and cover some or all of the cost involved in subdividing it.
Costs:
Purchase of property = $’x’
Subdivision costs = ~ $80,000 (this is via reading a lot of sites / books / blogs, etc) I am not sure if this figure is on the high side or not. I have been using it as a guide as i am aware the figure would vary based on the property.
Sales costs = $’x’ (account for advertising and agent fees. etc)
Tax = $ for CGTI currently have a PPOR and savings. Discussions with my current lender has allowed for a considerable loan should we need it for a buy and hold. They aren’t really interested in our subdivision plan as they don’t do loans of that type.
I have been looking online for lenders and the information they provide but i seem to be missing the correct terminology as the results seem to return the same 4 / 5 sites.
Could you suggest terms to google or companies that might suit my needs.
Thank you
Kevin you won’t find any online lender interested in doing a small development finance loan let alone one that will provide funding for subdivision costs.
Unless you have equity in your PPOR you won’t find a lender advance against soft cost (i.e Council fees, contributions, architects etc etc) on a small subdivision.
On the small side of development you are limited to a percentage of land or initial purchase cost and then a percentage of fixed price contract. You fund the balance.
For a bigger development then certainly funding against a gross realisation of the project is possible.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Thank you for the reply Richard. My thinking was heading in that direction and you have provided confirmation of this.
How you would do it is to borrow 80 or 90% of the new property and for the remaining costs you would set up a new loan against your main residence.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Set a line of credit or similar up with your current lender and then go to another lender that is interested in Construction loans. If you are just dividing the land and selling though as land only, Most banks will consent to the division unless value of the new security (new blocks of land) is less then the current property with improvements (if it is a existing house). Just fund the rest of the costs with your savings or remaining portion of Line of credit.
Also check with your accountant, more likely not tax $ on CGT and would be income tax.
Well I should say, fund it with your Line of credit so you can claim the interest and sit your savings in a offset against your PPOR until required (use last)
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