Cheapest Lender for $600k Loan for Development

[littletee]

Hi Guys,

Long story short we are developing our PPOR into 3 Townhouses.

I am looking for the cheapest lender for a $600k Loan to construct the 3 Townhouses and pay off our current mortgage of $30k. Can anyone recommend a lender who has the cheapest rate for what I want to achieve?

I've done some quick research and the below companies are the ones who on the face of it look like they're the most competitive-

Fox Symes
Loans.com.au
Ratebusters
MyRate
RESI
State Custodians
Illawarra Home Loans
Newcastle Permanent

If anyone knows of any others or if there are any Developers here who could point me in the right direction that would be great as well.

Cheers,

Littletee

 

[Aaron_C]

Hi littletee. We need more information....what do you mean by cheapest? What LVR do you want? GDV? Feasibility?

 

[Kristine..]

Why don't you just increase the current mortgage loan?

Once you have completed the development and registered the subdivision, you can then look at the 'best' deal for the ongoing financing

But funding the 3 townhouses ... you may find that the current lender would be interested in offering you a competitive deal

Equally, 'cheapest' may not be interested in the deal at all!

Not all lenders fund construction and even fewer fund for the construction of 3 dwellings

Cheers

 

[Marty McDonald]

I realise price is important but you may struggle with those small lenders.

I suggest you work the other way round ie find out who will give you the gold then look at / go on price.

 

[littletee]

Why don't you just increase the current mortgage loan?

Once you have completed the development and registered the subdivision, you can then look at the 'best' deal for the ongoing financing

But funding the 3 townhouses ... you may find that the current lender would be interested in offering you a competitive deal

Equally, 'cheapest' may not be interested in the deal at all!

Not all lenders fund construction and even fewer fund for the construction of 3 dwellings

Cheers

Hi Kristine,

Thanks for getting back to me.

I'll be looking at this option for sure, I'm currently with Westpac but I don't think I have a competitive rate compared to what is out there at the moment and with such a large loan I want to make sure I get the best deal on the market if I can.

You're right as well, maybe the cheapest ones want lend to me but that's what I need to research further.

Cheers

Littletee

 

[Aaron_C]

Littletee - let me tell you one thing. When it comes to development - the interest rate doesn't really matter. Who cares if you're paying 6, 7, 8 or even 9% when you're finishing the development in 1-2 years anyway? What you need is a lender that will lend you a good LVR on hard/soft costs, easy to deal with, easy drawdown etc. It is very very different from your plain-vanilla home loan...

 

[littletee]

I realise price is important but you may struggle with those small lenders.

I suggest you work the other way round ie find out who will give you the gold then look at / go on price.

Hi Marty,

Yeah you might be right mate.

Will see what happens, apparantly there's a price war happening between Westpac and ANZ now because ANZ is offering a 1% discount to their variable rate to all ANZ Clients whereas Westpac is only .7%, so apparantly Westpac is now willing to offer the extra .3% as well if you call them up and complain/threaten to leave etc or something. Will be exploring this option further.

Cheers,

Littletee

 

[littletee]

Littletee - let me tell you one thing. When it comes to development - the interest rate doesn't really matter. Who cares if you're paying 6, 7, 8 or even 9% when you're finishing the development in 1-2 years anyway? What you need is a lender that will lend you a good LVR on hard/soft costs, easy to deal with, easy drawdown etc. It is very very different from your plain-vanilla home loan...

Hi Aaron,

Yeah you're probably right, although it will be finished in max 12 months hopefully.

To answer your first question, to be honest I don't really know what the LVR/GDV will be.

I'm hoping the below might be able to provide more info-

PPOR value - $360k approx
Mortgage on PPOR - $30k
Development Cost - $570k approx
Townhouse valuations in total - $1.050-$1.1mil approx
Rental Income - $530 per week approx (from 2 Townhouse, we're living in 1)
My Gross Income - $90k
Wifes Gross Income - $40k
Cash on hand - $40k
Credit Card Limit - $7k
Credit Card Debt - $3k

Does the above provide you the approx info you were asking? Sorry mate but I'm green to all this but learning.

Cheers,

Littletee

 

[Aaron_C]

Both you and your wife's incomes are strong for this deal so you can do it via normal residential construction loan.

But a few things stand out for me:

1) $570,000 to build 3 townhouses? How big is each townhouse?...have you got a fixed price contract yet or a builder's quote?

2) Have you got stamped approved plans from the council?

3) Where is the development located? You seem to be selling each house for ~$350,000 each...even if we assume your figures are correct your margin is just too slim to make any money from it...You basically make only $100,000 in manufactured gain. That's too small. It should be at least 20% - maybe find a way to squeeze more townhouses on the land?

 

[littletee]

Both you and your wife's incomes are strong for this deal so you can do it via normal residential construction loan.

But a few things stand out for me:

1) $570,000 to build 3 townhouses? How big is each townhouse?...have you got a fixed price contract yet or a builder's quote?

2) Have you got stamped approved plans from the council?

3) Where is the development located? You seem to be selling each house for ~$350,000 each...even if we assume your figures are correct your margin is just too slim to make any money from it...You basically make only $100,000 in manufactured gain. That's too small. It should be at least 20% - maybe find a way to squeeze more townhouses on the land?

1./ Yes just waiting on Engineering to confirm the fixed price contracts but from the quotes I've got they'll come in somewhere in the range of $500-$540k depending on which builder I go with etc. I've allowed an extra $30-$50k for Incidentals and other costs that inevitably come up with this building, such as the $11k or so for Sub-division and other things.

2./ Yes all approved from Council, just completing Working Drawings/Engineering now so Building Permit is last step.

3./ Ardeer, about 17km's west of Melbourne. Can't squeeze anymore on, done well to get 3 nice ones on 700 sqm's. Bought the place for $255k but have spent about $30k to get it to this stage as well. Idea is most likely to build and then sell the smallest Townhouse for around $330-$350k to pay off most of the Debt but am awaiting to meet with a Property Accountant to find out what the best strategy will be for us and any tax implications etc etc.

 

[spludgey]

Townhouse valuations in total - $1.050-$1.1mil approx
Rental Income - $530 per week approx (from 2 Townhouse, we're living in 1)

You realise that this will be a rental yield of 3.8%, right?

 

[Aaron_C]

Ok that makes things clearer - so you're almost there. In that case there are a lot of lenders who will do this deal. However, like I mentioned before, rate isn't that important here. You will need to find a lender who will agree to using the security that has 3 properties on 1 title (a lot do not) under a normal construction loan. Failing that, a commercial construction loan can be used without an issue, and you might not even need pre-sales.

 

[littletee]

You realise that this will be a rental yield of 3.8%, right?

Made a mistake, should of been $630 per week. $300 from one and $330 from another, both approximates.

 

[Qlds007]

Have to say good luck in getting Anz to give you 1% discount with 3 properties on a single Title. Max 2 came in 9 months ago.

I can think of a couple of lenders who would probably give you 0.8% but not 1%. As the boys say if you decide to flog them off in 9-12 months why worry about an xtra 20bp's.

 

[littletee]

Thanks we're looking into all this now. Cheers

 

[sanj]

Thanks we're looking into all this now. Cheers

why bother when a broker can help you with the legwork?

$930k costs + holding cost and selling fees, you sure it is worth the trouble if theyre only worth $1.05-$1.1m? have you got any contingency in your construction cost?

 

[littletee]

why bother when a broker can help you with the legwork?

$930k costs + holding cost and selling fees, you sure it is worth the trouble if theyre only worth $1.05-$1.1m? have you got any contingency in your construction cost?

Yeah got a broker onto it now.

We're building to keep 2 of them and sell 1 which will wipe 50% of our debt and allow us to be debt free in 5-7 years max with 2 investment properties fully paid off.

Tried selling them with plans but no bites, happy to develop though as long term will put us on a good footing I believe.

 

[landlord78]

I am looking for the cheapest lender for a $600k Loan to construct the 3 Townhouses and pay off our current mortgage of $30k. Can anyone recommend a lender who has the cheapest rate for what I want to achieve?

Littletee

Just spoke to a few people this week about similar numbers for a development.
St George 6.65%
MECU 6.64%

Hope that gives you a guide.

 

[littletee]

Thanks Landlord.

Apparantly the Broker has got CBA in mind for 6.56% and also WBC around the 6.6% level as I'm currently with them.

Cheers

 

[Ian (WA)]

Thanks Landlord.

Apparantly the Broker has got CBA in mind for 6.56% and also WBC around the 6.6% level as I'm currently with them.

Cheers

Good luck with CBA at 6.56%.........we could only manage getting them to do a construction loan via Business Lending for 3 x stand alone, two storey townhouses in Adelaide at 8.06% six months ago.

They were very, very clear that any build for more than two dwellings was a commercial lend; they absolutely would not budge to do it at a Resi lend.

Hope it works out LT.

Cheers, Ian.