Building contracts and equity loan questions please.

[jasonp3]

Who can explain to me how borrowing against equity works for this situation please.

How would equity work for a $140000 loan

How much would one need to pay it back and how long would it take

If it would be used to build a unit that might rent for $400 a week how soon would the unit pay for itself if we also allowed time for the unit to be built

Would it usually take 6 months to build a 3 bedroom unit possibly 2 storey?

what kind of clauses can be in the contract to stop the builder stalling or going over time, eg that there is a discount if he goes overtime

what other clauses in the contract would i want to help it go smoothly and protect myself

what professionals can help me with these questions please .

Many people built wealth using their equity but i worry as i have hear about banks deciding suddenly to close the loan and sell everything and so i want to make sure its foodproof that i will be able to pay it back and risk what i have.
Thank you.

 

[Peter_Tersteeg]

I don't really understand the context of the question. I get that you want to build a unit or two, but there's no real description of the circumstances, rather just a series of vague and unrelated questions?

Yes, you can use equity in other existing properties to help leverage yourself into the new deal. You use this equity by borrowing money against it and that needs to be paid back at some point.

I've seen buildings put in within a few months, others have taken a year or more. Depends on how busy the builder is.

You can build penalties into a building contract for going overtime, such as the builder needs to compensate your for rent you're paying or not getting. Most building contracts follow a standard HIA template which contains fine print covering a lot of things.

To structure the finance properly you should engage a mortgage broker. To build the properly you need a registered builder. If you don't understand the building contract, a solicitor should be able to explain it to you.

I've been a broker for a long time and have dealt with probably thousands of equity loans. I've never seen the bank suddenly decide to close one and sell everything, as long as the borrower keeps making the repayments and meets their end of the deal.

 

[tobe]

Most building contract stipulate penalties if they go over 6 months for single and 9 months for double storey. The penalties may not truly reflect your costs however, and there are a lot of get out clauses such as rain/weather delays etc.

Yes, most lenders can rely on the future rental income to approve the loan fo the development, and they will only charge interest on the money acutally drawdown. As the building is completed, the loan is gradually fully drawn and ful interest payments are expected (where only part interest payments are expected while it is being drawn/built).