Help with construction loan for a granny flat

[angel0death]

I bought a house in the western suburbs of Sydney as investment, with the intention of building a granny flat in the back.
I knew that I wouldn't be able to build the granny flat right away, because I don't have enough cash. So, I've been saving up for it.
Recently, I called up my bank to get some information about construction loans. Maybe he didn't have experience in this, but what I was told left me very confused about construction loans, and how I go about getting one.
So, I was hoping that someone could enlighten me, and bring me back on the right path.

Anyways, as far as number are concerned. The property was purchased for $340000. 95% LVR with 3 years fixed interest. Rented out for $360 per week. Property has been investigated and confirmed to be able to build a granny flat. I have about $10000 saved up. I've been looking around, and a 2 bedroom grant flat is around $130000 to build.
Rental agent reckons I can rent it out for about $300 per week.

What's the process in terms of getting a construction loan for me to build a granny flat? Thanks.

 

[Aaron_C]

Depending on the lender you can simply get a loan increase as a construction loan to build the granny flat.

 

[Rolf Latham]

The first thing to establish is if your lender will support 2 dwellings on one title above 80 % lvr, and in your case at 95 % lvr

A few will not do them above 80 %.

The balance of the transaction is to get the usualy build quote plans and approvals.

One large risk that you face is that the val will likley come in short

Our experience is, in that area, if you spend 100 k on a granny,it will only raise the val by 70 k, so a 70c in the $ rtn.

Typically the, youd need the normal 5or 10 % deposit + 30 k

ta
rolf

 

[nhg]

As above, you will have a hard time finding a lender that will cover the cost of dual-occ on 80%+ LVR.

I had the same issue, my solution has been to fund the entire construction myself and refinance afterwards, however it is not an option for everyone.

Talk to one of the above mortgage brokers who replied previously (I've used Aaron C and was happy with his service) or Terry Waugh is another I would recommend.

NHG.

 

[Elke]

As above, you will have a hard time finding a lender that will cover the cost of dual-occ on 80%+ LVR.

I had the same issue, my solution has been to fund the entire construction myself and refinance afterwards, however it is not an option for everyone.

Talk to one of the above mortgage brokers who replied previously (I've used Aaron C and was happy with his service) or Terry Waugh is another I would recommend.

NHG.

Hi NHG, I just looked up "hug it forward" and saw the bottle school video. Wow - very inspiring. does any eco brick building like that occur in 'developed' countries? Are there health risks? what if the bottles leak? What rubbish do they fill the bottles with? If safe, this is a brilliant idea. Thanks for sharing it, and I wish you all the best to achieve your personal mission.

 

[RetireRich101]

$10k might be covering the initial drawing plan, approval, council contribution fees etc which some may not be incorporated into your loan.
Also the the $130k GF build might be bit expensive? Maybe tone down on your upgrades in the GF if you have them. Thought Around $100-110K circa would be reasonable.

 

[nhg]

$10k might be covering the initial drawing plan, approval, council contribution fees etc which some may not be incorporated into your loan.
Also the the $130k GF build might be bit expensive? Maybe tone down on your upgrades in the GF if you have them. Thought Around $100-110K circa would be reasonable.

Aside from council contributions, incl. gst I wouldn't be paying more than $115k for a pretty nice granny flat (brick veneer, high roof, tiles).

Where abouts in Western Sydney? If the main residence is fibro or cladding. I wouldn't go brick construction, would save you quite a bit.

 

[nhg]

Hi NHG, I just looked up "hug it forward" and saw the bottle school video. Wow - very inspiring. does any eco brick building like that occur in 'developed' countries? Are there health risks? what if the bottles leak? What rubbish do they fill the bottles with? If safe, this is a brilliant idea. Thanks for sharing it, and I wish you all the best to achieve your personal mission.

My friend and I tried to build one in the Philipines, had the land donated and some suppliers sorted, but we were very quickly swamped by corruption, everyone wanting a cut of something. So we pulled the pin.

Something similar to this: http://www.npr.org/blogs/money/2013/05/21/185801589/episode-460-its-hard-to-do-good

There are a few mobs that dedicate themselves to it full time like hug-it-forward. I figure I'd best leave it to the 'professionals'.

The materials in the bottles shouldn't be organic so wouldn't decompose or leak. UTS has a earthquake table where they experiment with different materials to see what is most durable, very interesting studies there.

There is someone on this forum from memory who builds interesting things like these in their backyard for his own amusement, can't recall their name.

I was recently approached by a new aquaintance to try and give it another go in Vietnam. I've been too cautious this time around, it's moving very slowly.

 

[mflying]

good designed Granny flat can be done for $90K. (turn Key). just need to know who and what material need to use.

Re: Finance, as long as serviceability is fine and you have some money to fund the initial cost.. it is doable.

Feel free to PM me for further details!


NHG,

good video!

 

[geoffw]

A build cost typically won't include extra excavation (if they hit rock), floor coverings, window coverings, landscaping, driveways, paths, carport. Those can very quickly add up.

As there is a lot of empty stock in our area we went for spending a bit more on top of all that to make it better than what's around to ensure that it would be desirable.

Council fees were $5.5k just to connect with services. Because ours didn't fit in with SEPP we also has to go for a full DA with associated expenses.

You do not want to be in a position where you have budgeted an amount and then cannot move. Budget at least 20% higher than a minimum spend. It's better to have money left over than not to have enough b

 

[angel0death]

The first thing to establish is if your lender will support 2 dwellings on one title above 80 % lvr, and in your case at 95 % lvr

A few will not do them above 80 %.

The balance of the transaction is to get the usualy build quote plans and approvals.

One large risk that you face is that the val will likley come in short

Our experience is, in that area, if you spend 100 k on a granny,it will only raise the val by 70 k, so a 70c in the $ rtn.

Typically the, youd need the normal 5or 10 % deposit + 30 k

ta
rolf

Thanks, Rolf. I'll really need to check this with the bank. Plus, if it does come in short at the end, that means that I'll have to save even more to get started.

 

[angel0death]

As above, you will have a hard time finding a lender that will cover the cost of dual-occ on 80%+ LVR.

I had the same issue, my solution has been to fund the entire construction myself and refinance afterwards, however it is not an option for everyone.

Talk to one of the above mortgage brokers who replied previously (I've used Aaron C and was happy with his service) or Terry Waugh is another I would recommend.

NHG.

Thanks, nhg. If I were to fund the whole construction myself, then refinance, that would mean that I'll have to save up even more. Plus, I can't refinance until my fixed term ends (3 years).
I'm negative gearing on this property at the moment. Do you have any ideas you could share on how to turn it into a positive gearing property? Thanks.

 

[angel0death]

$10k might be covering the initial drawing plan, approval, council contribution fees etc which some may not be incorporated into your loan.
Also the the $130k GF build might be bit expensive? Maybe tone down on your upgrades in the GF if you have them. Thought Around $100-110K circa would be reasonable.

Thanks for sharing. Tbh, I had no idea that all these fees might add up to $10k. And, this is before the actual construction.
Guess I'll have to do a bit more planning.

 

[angel0death]

Aside from council contributions, incl. gst I wouldn't be paying more than $115k for a pretty nice granny flat (brick veneer, high roof, tiles).

Where abouts in Western Sydney? If the main residence is fibro or cladding. I wouldn't go brick construction, would save you quite a bit.

Hi nhg. The property is in St. Marys, and the main residence is a fibro/weather board. So, you might be right in suggesting that I shouldn't be paying more for a fancy looking granny flat which does not compliment the main residence.