construction loans/subdivision loans

Howdy ppl

Looking at property with large block, reno existing house(or demolish and remove), subdivide and build at the rear.

When obtaining a construction loan do you start payments at settlement or when the project is finished and revalued?
Can you defer payments until project completion?
How do you finance holding costs until the project is finished and you can rent out?
Can you lend for the final valuation price?
Would love to hear from everyone!

(properties shall be purchased under a trust structure)

all replies are welcome

dags
 
Hi dags,
there are various options available.

1. You could get a standard construction loan and pay interest on progress.
2. You could get a proper development loan (let's say 70% of end value, interest rates around the 9% mark) and get interest capitalised
3. Or you could get a standard construction loan and pay interest out of your LOC (and let it capitalise) on progress.

Have a great day.
 
thanks Rolf,

Option 3 looks good, I like the idea of using debt to service debt.
I shall keep you updated!

kind regards
dags
 
Hi Dags,

Buying something that you can reno and rent out (as apposed to demolishing) while you subdivide and construct is a great way to get some income coming in. This can help towards your holding costs during approval and construction.

Cheers, Medine
 
hi dags
I would go for option 2 loan and capitalised interest
you get an end loan value from your lender and you get what your loan to construct is upfont
so there is no hidden problems.
with regards to lending on the finalised value yes but it does need to be 80% complete or most lender won't look at it.
if you can sell one that gives you a market value for the end product and work of those new values at that point.
 
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