How do I plan to position myself for future building

Z

Zeddy

Hi all

I have 2 IPs (1 CBD apartment, 1 detached house in the metro region) and an IP/PPoR (detached house) in the Adelaide metro area. In the future, I want to knock down the IP/PPoR, and build two detached or semi-detached houses on the block of land.

My question is how do would you plan to position yourself to build in say 3 - 5 years time? My thoughts so far:

- Browsing builder websites suggests I need around $150k min per house. So I need to be able to borrow an additional $300k on top of my existing loans to build.
- I am currently near my borrowing capacity, so my focus for now is to put as much cash as possible into my offset account to build a buffer/reduce my LVR as much as possible.
- I will need to allow for around 12-18 months of no rental income from the IP/PPoR site during the construction phase.
- I will have to rely on CG of my 3 properties to provide additional equity.
- I will have to carry out a valuation once the properties are constructed for tax purposes.

This is the first time I am considering investing in the construction of houses. Can anyone point me towards resources (books? online?) or provide other guidance with regards to what I have to do to position myself to build in the near future?
 
For developing you don't have to rely on your serviceability to get the deal done.

In any case, are you sure you are near your borrowing capacity? Are you with only one lender?
 
Aaron_C said:
For developing you don't have to rely on your serviceability to get the deal done.

In any case, are you sure you are near your borrowing capacity? Are you with only one lender?
Click to expand...

I recently refinanced via a mortgage broker to ANZ to buy the IP/PPoR. My borrowing capacity is around $140k at present, but I do not wish to take on more debt in the next 12 months due to cashflow issues. I was planning to declare the PPoR as part IP and get rent for individual rooms, but as my parents are moving in (they are demolishing and rebuilding their home), I am not receiving rent and cashflow is tight.

Thus my timeframe for 3-5 years - 1 to 1.5 years for the parents to build their house, and another 1.5 years to build a bit more of a cash buffer. My cash buffer at the moment stands at 50K for loans of total value around 800K.

Edit: I should note, I would like to hold both built properties - one to live in, the other to rent out. I'm greedy! :)
 
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Zeddy said:
Edit: I should note, I would like to hold both built properties - one to live in, the other to rent out. I'm greedy! :)
Click to expand...

1. ANZ has some of the worst serviceability numbers in many cases
2. You will have to demonstrate serviceability to hold both

does your 140 include the additional income that will be generated ?

ta
rolf
 
Is that a borrowing capacity of $140,000 with ANZ? As Rolf said ANZ has very bad serviceability compared to many other lenders. What did your broker say?
 
Rolf Latham said:
1. ANZ has some of the worst serviceability numbers in many cases
2. You will have to demonstrate serviceability to hold both

does your 140 include the additional income that will be generated ?
Click to expand...

The $140k is my current borrowing capacity when I was looking at purchasing a $135k property with $200pw rent.

I will start doing some calculations to check what figures/cash I need to show serviceability.

Aaron_C said:
Is that a borrowing capacity of $140,000 with ANZ? As Rolf said ANZ has very bad serviceability compared to many other lenders. What did your broker say?
Click to expand...

The figure was provided by my broker, who had just refinanced all my loans to ANZ.
 
Finance from ANZ. When I enquired about another lender that sent me an advert, he replied that in general ANZ was already very competitive and there was little advantage to be gained from financing elsewhere.
 
Zeddy said:
Finance from ANZ. When I enquired about another lender that sent me an advert, he replied that in general ANZ was already very competitive and there was little advantage to be gained from financing elsewhere.
Click to expand...

That's simply not true. He is an independent broker or an ANZ mobile banker?
 
Zeddy said:
He's from Aussie. I assume that's independent?

To put things in perspective, I bought the IP/PPoR only 4 months ago.
Click to expand...

Yeah it makes no sense to have 3 loans with the same lender in sequential order, especially if your borrowing capacity is a bit tight. He might be independent but he's not maximising your capacity. You might as well go to the bank and forget the broker imo.
 
Aaron_C said:
Yeah it makes no sense to have 3 loans with the same lender in sequential order, especially if your borrowing capacity is a bit tight. He might be independent but he's not maximising your capacity. You might as well go to the bank and forget the broker imo.
Click to expand...

Understood Aaron. At this stage however, until I start renting out rooms of my PPoR I think I've reached my ceiling in terms of debt appetite. From the sounds of things, I should consider refinancing the IP/PPoR when it comes to building time.

Unless of course I come across a particularly tasty IP beforehand. :p
 
Zeddy said:
Understood Aaron. At this stage however, until I start renting out rooms of my PPoR I think I've reached my ceiling in terms of debt appetite. From the sounds of things, I should consider refinancing the IP/PPoR when it comes to building time.

Unless of course I come across a particularly tasty IP beforehand. :p
Click to expand...

Yes well your own personal appetite for debt is never the same as a bank's - completely different question there.
 
If you can't borrow the money you can sell one or both the IP's to fund the development. This, of course, requires a thorough feaso pertaining to the gains to be made. If done properly, you can profit nicely from developing and add some serious value over merely holding IP's.
 
Just buy it. Books cost peanuts compared to what you can earn out of it all. MY has some info on his site. I went to a Crutchfield course which pushed me along a bit. I read all the common ones like Jan Somers, MY, Chan,, etc. You can only read so much though before you get bogged down in the intellect. If there is no belief and determination moving into action then you probably shouldn't be jumping in too deep.

These guys are SS members but probably just came on to advertise themselves. I haven't read their material but they seem to know their stuff.

All the best, :)
 
Cheers Rockstar. I totally understand your warning not to get bogged down. As a beginner, I am looking at ways to determine building costs, determine what is required to get the loans, what kind of equity/service position I have to be in post construction to hold both, etc. Plus add in a healthy buffer for cost over runs and the like.

I'll grab the books and start reading through your references.
 
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