Loan for a block of residential units (in a line)

Hi all, and especially mortgage brokers with commercial loan experience :).

We are purchasing a block of units in a line (one title) and have been told that the loan needs to be on commercial terms although the units are residential units. We are going through St George and my question is, what would the maximum length of the loan be (ie, 15 or 25 years) are they likely to do interest only on a 'business loan' for this purchase? Property is in Sydney. The reason I ask is that we have received the docs from the bank and are being told that they will be unlikely to do interest only on the loan, which could be a deal breaker.

Anyone have experience or advice?

Thanks in advance.
 
How many units are there in one line?

If you do need to go commercial then St George is actually a good lender but I think you are dealing with the wrong person.

You can do around 5.20% (depending on the loan amount), no upfront fees other than valuation fee, $14 per month and 5 year interest only. As long as your lon conduct is good on the loan we can simply roll over the term. Max LVR 65%
 
How many units are there in one line?

If you do need to go commercial then St George is actually a good lender but I think you are dealing with the wrong person.

You can do around 5.20% (depending on the loan amount), no upfront fees other than valuation fee, $14 per month and 5 year interest only. As long as your lon conduct is good on the loan we can simply roll over the term. Max LVR 65%
Thanks Shahin. There are 6 in a line and forgot to mention (and just to complicate things), it's being purchased in our SMSF. All good with the LVR (65%) .From your experience, what 'product' would St George be likely to use? Docs state it's a 'business loan' and it will be secured by the units, however, it appears that we are not being offered the advertised St George discount for a 'business loan, secured by residential or commercial property'.

Thanks Dave. Have now added the important details. :)
 
Thanks Shahin. There are 6 in a line and forgot to mention (and just to complicate things), it's being purchased in our SMSF. All good with the LVR (65%) .From your experience, what 'product' would St George be likely to use? Docs state it's a 'business loan' and it will be secured by the units, however, it appears that we are not being offered the advertised St George discount for a 'business loan, secured by residential or commercial property'.

Thanks Dave. Have now added the important details. :)
6 units on a single title in an SMSF if definitely commercial lending.

Your first issue is that its 6 units and that goes against the SIS Act. So what you will need is a letter from your solicitor stating that the units cannot be strata titled because the walls are not fire rated or whatever the reason may be.

The lender's solicitor must also be comfortable with this but we have done a few of these and as long as you can ascertain the letter then you should be fine.

St George is definitely the best lender for this scenario. 65% LVR, 5%ish rates depending on loan amount, no upfront fees, etc.

You just need to deal with the a person who knows the product and process inside out.
 
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Your first issue is that its 6 units and that goes against the SIS Act. So what you will need is a letter from your solicitor stating that the units cannot be strata titled because the walls are not fire rated or whatever the reason may be.
I don't think it would. A SMSF can only borrow to acquire a single acquireable asset. If the units are not strata titled now they would be a single title. The fact that they could be strata titled won't mean a breach, unless they are strata titled after purchase while there is a loan on them.

- This is off the top of my head so I could be wrong, don't rely on it.

Of course a lender may still be worried...
 
Thanks Terry W. Have emailed my SMSF guy but I wasn't of the opinion that I would be in breach, as we weren't planning on strata titling them. I just might sleep a little better now while I await his reply. :)
 
I don't think it would. A SMSF can only borrow to acquire a single acquireable asset. If the units are not strata titled now they would be a single title. The fact that they could be strata titled won't mean a breach, unless they are strata titled after purchase while there is a loan on them.

- This is off the top of my head so I could be wrong, don't rely on it.

Of course a lender may still be worried...
Lender will definitely have an issue with the multiple dwellings on a single title under an SMSF. Thats why you need to proactively provide the documentation and state on the documentation the reasons as so why they are not subdividable, i.e. fire rating.

Generally if its a block of apartments then providing the fire rating reason is sufficient. However its is a say 2 separate houses then this is an issue.
 
Lender will definitely have an issue with the multiple dwellings on a single title under an SMSF. Thats why you need to proactively provide the documentation and state on the documentation the reasons as so why they are not subdividable, i.e. fire rating.

Generally if its a block of apartments then providing the fire rating reason is sufficient. However its is a say 2 separate houses then this is an issue.
Thanks Shahin. They're not individually water metered. Would something like that suffice if we needed to supply it do you think?
 
Just because they are not separately metered doesn't mean they can't be at a later stage - I won't added this.

I would note that they are note fire rated walls thus there is no possibility of strata titling the units. Have done this numerous time in the past and it has worked.
 
A single acquirable asset is the requirement for a limited recourse borrowing. Banks wont lend if its possible to split title later. They must remain a single title and be incapable of separate title.

That said it can still be done. It just costly. A single custodian trustee company and a separate loan and separate bare trust per unit even on single title still works. Normally its duplexes (2) that have this issue. Its far easier with two trusts and only add a few hundred dollars for extra trust + extra conveyancing and fees.

If you hold each in its own trust its allows sale of one later. If its all in one bare trust you cant sell just one.
 
A single acquirable asset is the requirement for a limited recourse borrowing. Banks wont lend if its possible to split title later. They must remain a single title and be incapable of separate title.

That said it can still be done. It just costly. A single custodian trustee company and a separate loan and separate bare trust per unit even on single title still works. Normally its duplexes (2) that have this issue. Its far easier with two trusts and only add a few hundred dollars for extra trust + extra conveyancing and fees.

If you hold each in its own trust its allows sale of one later. If its all in one bare trust you cant sell just one.
Thanks Paul (and Shahin).

I believe that the unit block, being on a single title is a single aquirable asset. We have no intention of strata titling the units down the track, so they will remain on a single title. It appears that our lender is ok with this. I don't suppose there's a link that you can share with me so that I can read up on it a bit more? Is it just a lender requirement or a SIS act issue?
 
I don't think it would. A SMSF can only borrow to acquire a single acquireable asset. If the units are not strata titled now they would be a single title. The fact that they could be strata titled won't mean a breach, unless they are strata titled after purchase while there is a loan on them.

- This is off the top of my head so I could be wrong, don't rely on it.

Of course a lender may still be worried...
Thanks Terry. That's been my belief, so I really hope you're right. :)
 
Thanks Paul (and Shahin).

I believe that the unit block, being on a single title is a single aquirable asset. We have no intention of strata titling the units down the track, so they will remain on a single title. It appears that our lender is ok with this. I don't suppose there's a link that you can share with me so that I can read up on it a bit more? Is it just a lender requirement or a SIS act issue?
The lender will not that this a multi dwelling security unless it has been satisfied there is no way it can be subdivided.

When you say your lender is ok with it - who is the lender? Is the branch person? Broker? Credit Manager?

I can assure you that credit will raise this once they receive the application.

The only way credit is not going to say anything is if they have 75 jose cuervo tequila shots the night before and they are completely off their face when assessing the application.

Anyways good luck and please let us know how you go.
 
There is no issue in the SMSF purchasing the property done a number of them in fact my own Super fund owns a block.

As has been said you wont be able to consider strata titling them until the LRB has been repaid.

Cheers
 
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