Finance for IP su-div,knock down & build 2 semi-detached

[MajowSA]

Hi All
We have a IP that we are in the process of looking to knock down and build 2 attached dwellings.
Have already engaged surveyor for sub-division process and have designs & first deposit paid with builder, awaiting fixed price contract
as I type this hopefully only 1-2 wks away.
My problem lies with the financing structure and approvals, being new to this we have moved forward to this point on some otherwise questionable advice that has me now trying to get the correct advice.

Firstly we are doing this as a J.V with my mother & step-father, he wants to retire asap due to health so we are trying to make happen quickly. LVR will be about 75-78 %, total outlay about 1.15m - conservative return 1.35m ( current market ) Total income for serviceability approx 230k between all 4 of us.

On the advice of our broker & builders sales rep we re-tenanted the property for 6 months about 8 wks ago, 2 weeks later our broker informs me that the bank needs the deposited plan number from LTO, council approval, plans and contracts from builder. No problems - I ring our surveyor for DP number he informs me we won't get this till house is demo'd & final survey lodged with LTO.

Now heres were I get a bit lost, can't get finance approval without DP Number, can't get DP Number without knocking house down and I'm a bit reluctant to knock house not knowing if we can go forward!!!

I believed we would be able to get finance approved subject to ( LTO dP number ) which would have then allowed us to move forward with a little security, it seems a little unrealistic to have to demo the house without anyway of knowing if finance will be approved.

Is this normal procedure with the banks ? Is there a way around it ? Does anybody know which finance institute in SA would be best one to approach ?

We need the separate title valuation to achieve the LVR, we are happy to move forward on shortened valuation due to 2 houses on one title as long as we can go back to bank when we have 2 dp numbers for re-evaluation.

I thank you all in advance for taking the time to read this and thank anyone in advance for any assistance you can give us, please ask any questions that may help you answer as we really need the Help !!!

Cheers Matt

 

[Rolf Latham]

Hi Matt

You could look at a bank or non bank lender that looks at the end value.

Althugh the margin looks ok, it may actually be skinny depending on how solid your costings are and if they include an contingency

ta

rolf

 

[tobe]

Wait until you have the fixed price contract, then ask the bank to do an on completion valuation. make sure that valuation notes your intention to subdivide (you may need to provide evidence that this is underway).


Once they have finished the val, getting the LTO condition moved to a settlement rather than an approval condition is a fairly simple matter.

 

[Gools]

Matt, great fun isn't it.
The number of steps that require the existing building to be demolished make it an interesting project. You lose the rental income from the house and you lose Plan B all in one go. Feel free to provide some details of your budget so we can hack it to pieces and make you even more nervous.... It 'normally' works our for the best though, once you have the figures locked in correctly.

Gools

 

[Mick C]

Hi,

There's no easy way out with DP and the banks...it's a matter of having a safty buffer and know what the worst case scenarios might be.

The issue is the bank can only issue final approval on say Lot xxxx ( current place) -- but once your DP goes through and subdivion occurs you will have a different lot number; so your final approval is unless and needs to be re-done and issued + re-valued.

Also before final approval a valuation must be done and accepted- the valuer can only value the current place; the DP has not been approved yet for the valuer to value both place separately.

So unfortunately you will need to get DP plans first then finliaize your finance with the correct DP, registration number and lot numbers etc.

Valuation is going to be your biggest killer! a lot of valuation recently has fallen short; once you get your DP done...your hoping not just ONE valuation but BOTH to be ok.

So what can you do?- just make sure your numbers stack up and you have a buffer incase the LVR needs to be increased/decreased.
Consider applying to a lender where they be happy to go to 90% LVR with the LMI approval; as long as you can service the loan.


Regarding end value; most of the major banks will not take in your end value unless it's commercial lending. So you will be forced to go to smaller residential lenders if it's that important , but looking at your value ( 1.15 VS 1.35) - it's not a huge difference given the loan amount.

Regards
Michael