Options for financing triplex development

[thydzik]

members,

I need some insight into what my options are for financing a triplex development in Perth, here is my situation and estimates;

development land outright owned $450k
estimated construction costs $650k
estimated on completion value $1.4m

Now the initial problem I see is I have a serviceable borrowing amount of $300k only,
Is there a way to use the equity of the land for a residential loan or will I need to be looking at a commercial loan?

Thoughts appreciated.

 

[Aaron_C]

It will be commercial if you can't service the debt.

 

[thydzik]

Aaron, thanks for the reply.

would it be possible to get a land/home equity loan on top of the $300k loan?

Also, I forgot to mention the loan will be serviceable after completion with rental income.

 

[Rolf Latham]

members,

I need some insight into what my options are for financing a triplex development in Perth, here is my situation and estimates;

development land outright owned $450k
estimated construction costs $650k
estimated on completion value $1.4m

Now the initial problem I see is I have a serviceable borrowing amount of $300k only,
Is there a way to use the equity of the land for a residential loan or will I need to be looking at a commercial loan?

Thoughts appreciated.

on the very limited data, it does look doable as a build and hold on resi terms, but would need to know a bunch more data obviously

Your expectation of servceability seems awful low with 3 rental incomes due

Suggest you go and chase a broker anc work through the options available to you.

ta
rolf

 

[thydzik]

Thanks Rolf,
About the serviceability, with my salary I can borrow $300k, assuming on completion rent per week $500, two being rented would increase this to $650k.

I am fairly new to all this. I will look at speaking to a broker.

 

[Aaron_C]

Lenders will take into account the future rental income. What you have in your favour is that you own the land unencumbered - making it a much stronger deal.

 

[jonmardell]

members,

I need some insight into what my options are for financing a triplex development in Perth, here is my situation and estimates;

development land outright owned $450k
estimated construction costs $650k
estimated on completion value $1.4m

Now the initial problem I see is I have a serviceable borrowing amount of $300k only,
Is there a way to use the equity of the land for a residential loan or will I need to be looking at a commercial loan?

Thoughts appreciated.

the rent will be taken into consideration so there is a possibility doing it as resi rates. would need a lot more information to make an accurate assessment.

 

[Rolf Latham]

Thanks Rolf,
About the serviceability, with my salary I can borrow $300k, assuming on completion rent per week $500, two being rented would increase this to $650k.

I am fairly new to all this. I will look at speaking to a broker.

Hiya

Youd want to make sure you found a way to service the debt as it grows without the rental income before you went to a lender.

In your case the most obvious way to do that may be to do a small equity loan to fund the interest while building

I assume that you willlive in one of the properties ?

if its too tough, you can always sell with DA and before build for a nice margin, especially if are currently CGT free ( Im not an accountant and that may not be right).

Once you are cashed up your serviceability will be less of an issue for a number of reasons

ta
rolf

 

[sanj]

Hiya

Youd want to make sure you found a way to service the debt as it grows without the rental income before you went to a lender.

In your case the most obvious way to do that may be to do a small equity loan to fund the interest while building

I assume that you willlive in one of the properties ?

if its too tough, you can always sell with DA and before build for a nice margin, especially if are currently CGT free ( Im not an accountant and that may not be right).

Once you are cashed up your serviceability will be less of an issue for a number of reasons

ta
rolf

i think a good compromise could be to subdivide the land into 3 lots, sell one either as a block with approved plans or house and land package (fairly hard to do at the moment in perth but improving) and then use the funds to help build the other 2.

 

[Rolf Latham]

i think a good compromise could be to subdivide the land into 3 lots, sell one either as a block with approved plans or house and land package (fairly hard to do at the moment in perth but improving) and then use the funds to help build the other 2.

We have 3 similar deals on the go at the moment.

The core issue I reckon appears to be that if the existing dwelling needs to be demolished, that getting 3 blocks registered is an issue, since most of the these are close to a strata situation, and will only be granted where the build is complete

Your idea makes great sense though if the OP can get it done

t
arolf

 

[thydzik]

thanks for the replies guys, some good thoughts.

Currently there is an old 3x2 being rented out on the land which will be demolished.

Once built, one is planned as a PPOR.

 

[Aaron_C]

Hm the problem with subdividing first is that you waste time as you have to put services in before getting approval to subdivide. IMO it's always better, if you can afford it, to build first.

 

[sanj]

We have 3 similar deals on the go at the moment.

The core issue I reckon appears to be that if the existing dwelling needs to be demolished, that getting 3 blocks registered is an issue, since most of the these are close to a strata situation, and will only be granted where the build is complete

Your idea makes great sense though if the OP can get it done

t
arolf

sounds like it would be a survey strata type thing instead of build strata so i dont think it would be an issue.

Hm the problem with subdividing first is that you waste time as you have to put services in before getting approval to subdivide. IMO it's always better, if you can afford it, to build first.

yeah it certainly will add 6 months or so, possibly up to 12 but it can help in situations where cashflow or servicability are a factor. one thing in the OPs favour is that holding costs are pretty much irrelevant since the land is unencumbered

 

[Shahin_Afarin]

You should be fine with servicing by using the proposed rental returns. Make sure you get a RE agent to have this ready when you are preparing the loan. The one important thing to check is the valuation amount. I know you saying it will be worth $1.4m but the valuer may have a different idea particularly if the property is on a single title. Valuers do not value on separate titles even if subdivision is staged after the construction stage. Do you have DA and CC approval on the property or are you planning to ascertain this from the council? Also be aware (depending on what the valuation comes back at) some lenders like ANZ only do 70% on construction.