Construction loan or home loan?

[lvrmax]

Hi everyone,

Looking at buying 1 bedroom house on 1200sqm block. House is established and will need full renovation. Looking at adding another 1 bedroom, redo kitchen, bathroom, and new living area. House price would be $130K as is. Can live in currently, just really old and need of serious update.

My question is can I get an investment loan to buy the house, then in a few months get a construction loan once I have plans and builders quote organised?

Hoping to rent out once construction completed.

Sorry if this is a stupid question, just not sure of the correct way to go about it and with seeking some advice before going to the bank/brokers.

Thanks for your help.

Luke

 

[jpcashflow]

Hi

Hi Luke,

Hope you are well?

This can be done but also a few factors that need to be taken into perspective.

We are working on two projects in Melbourne.

1) Deer Park: Building rear unit whilst renting out the front.
2) East Keilor: OCT 2014 we bought a home on a large block, rented out the property whilst we where getting permits. We have just knocked down the property and we are building two new units with the intention to sell them both.

 

[Colin Rice]

Investment loan first then a construction loan once plans are available. Get the broker to run some projected figures to ensure you can service the extra debt required to complete reno/construction.

I always encourage my clients to ask "stupid questions" in order to avoid "stupid decisions" so no such thing in my book as a stupid question.

 

[lvrmax]

Investment loan first then a construction loan once plans are available. Get the broker to run some projected figures to ensure you can service the extra debt required to complete reno/construction.

I always encourage my clients to ask "stupid questions" in order to avoid "stupid decisions" so no such thing in my book as a stupid question.

Thanks Colin and Johann for the quick responses.

Luke

 

[tobe]

be careful your not overcapitalising. the sort of reno you are thinking of might actually be more cost effective as a knockdown rebuild.
while you can get a construction loan for the reno, getting a full fixed price contract from a builder is usually much more expensive than doing it yourself, or without a contract. The lender will do a valuation as if the reno is complete, but will usually only lend to 90% of the value, or the build price whichever is the lesser. So you would have to sure the numbers stack up.

If you couldn't or didnt do the reno, would this still be a good investment?