Hi all,
I intend to build a granny flat on one of my IPs (lets call it IP1). As I understand it, there are 2 ways to finance a GF build - either use the existing equity in IP1, or obtain a construction loan for IP1.
My problem is that the projected value growth for IP1 in the next 2-3 years is likely to be slow, and I don't think I'll have enough equity in IP1 to finance the entire build. However I have enough equity in my other IP (let's call it IP2) to finance the GF build (I'm going by a rough cost of about 100k for a full turnkey build).
So my options are:
1. Obtain a construction loan for IP1
At the moment the LVR for IP1 sits at 81%. In a couple of years time it'll most likely hover around the 75% level. Assuming I can finance the 10% deposit myself, is this a viable way to proceed with obtaining finance? I also heard that valuation post-build is likely to value the GF at 70%... based on my calcs the final LVR post-build for IP1 + GF will be about 85%. Does that mean I'll be up for LMI? What other costs might I be up for?
2. Use equity in IP2 to finance the IP1 GF build
LVR for IP2 sits at 65%, and I have enough equity (circa 100k) to finance the GF in IP1. Drawing out the entire 100k would bring the IP2's LVR to about 80%, so no LMI involved. Would lenders allow me to use equity out of an IP to finance a build in a different IP? What about taxation, would this be allowed and classed as an investment expense (rather than a private expense)?
Which is my better option?
Can anyone help me with validating my thoughts above? Please feel free to pick holes in them
Thanks,
SQ
I intend to build a granny flat on one of my IPs (lets call it IP1). As I understand it, there are 2 ways to finance a GF build - either use the existing equity in IP1, or obtain a construction loan for IP1.
My problem is that the projected value growth for IP1 in the next 2-3 years is likely to be slow, and I don't think I'll have enough equity in IP1 to finance the entire build. However I have enough equity in my other IP (let's call it IP2) to finance the GF build (I'm going by a rough cost of about 100k for a full turnkey build).
So my options are:
1. Obtain a construction loan for IP1
At the moment the LVR for IP1 sits at 81%. In a couple of years time it'll most likely hover around the 75% level. Assuming I can finance the 10% deposit myself, is this a viable way to proceed with obtaining finance? I also heard that valuation post-build is likely to value the GF at 70%... based on my calcs the final LVR post-build for IP1 + GF will be about 85%. Does that mean I'll be up for LMI? What other costs might I be up for?
2. Use equity in IP2 to finance the IP1 GF build
LVR for IP2 sits at 65%, and I have enough equity (circa 100k) to finance the GF in IP1. Drawing out the entire 100k would bring the IP2's LVR to about 80%, so no LMI involved. Would lenders allow me to use equity out of an IP to finance a build in a different IP? What about taxation, would this be allowed and classed as an investment expense (rather than a private expense)?
Which is my better option?
Can anyone help me with validating my thoughts above? Please feel free to pick holes in them
Thanks,
SQ