Subdivide then build or visa versa? Finance implications

Hi there,
So having finally bought my first property I'm now looking to subdivide and build on the back lot. I am faced with two options and am having a bit of trouble working out the best way to go. (note I am in WA, so i'm not sure if the jargon will differ for other states):

Option 1 - Subdivide THEN Build:
The standard 'survey strata' development process: Subdivide lots, gain new titles, construct second dwelling.
PROS: *Bank will allow you to access capital generated (hopefully) from subdivision, therefore funding the construction deposit.
CONS: *Subdivision/siteworks costs can't be included in loan.

Option 2 - Construct THEN apply for titles (subdivide)
This is know as 'Build Strata' in WA, but note the outcome is still a survey strata title, same as option 1.
PROS: *Can be 3-4 months quicker, due to not having to wait for council to approve subdivision.
*All subdivision/siteworks and construction costs can be included in the loan;
CONS: *Possible bank will want lower LVR due to increased risk;
*Full deposit due at project initiation = higher holding costs;

I have crunched the numbers and it seems to me that the increased holding cost of option 2 (due to higher deposit, due sooner, and not being able to use equity from subdivision) is about the same as the rental income produced by the faster project completion. Meaning: I'm not sure which is the better option!

My question therefore is: am I missing something? Is there a reason why someone would favor one option over the other? Have people decided between the two themselves?

Cheers guys :)
 
It depends on how many units are involved. By far most people do the construction first, then subdivision later. Finance-wise getting the construction finance isn't a problem if there are 4 or less units (and assuming you service). 80% of land+building costs is standard.
 
Cheers Aaron,
There are only 2 units involved (one retain and one build).
I have been told that whilst banks will lend 80% for a standard construction (after titles are issued), some banks will only lend circa 70% for the Build-then-subdivide model because of the added risk involved (ie the small possibility that titles aren't issued once the house is constructed). I should note though that if I secured lending for 70% of the construction AND subdivision AND siteworks etc (which I am advised they will), then this is probably more than the 80% of the construction alone.
 
You may be talking to the wrong people. Almost all lenders will be able to do 2 units on a single title to 80%. There are even quite a few lenders who'll go to 90% on residential finance for this sort of project. Keep in mind that this is based on hard costs (land plus building costs). You'll generally have to cover planning and sub-division costs yourself - although there's ways to finance the subdivision costs as well once the construction is completed.
 
I'm a fan of built strata - simply because I don't want to look at an empty block and paying for it :)

Does a survey strata need to be signed off by council before Landgate like a Built Strata does? I ask because I recently fell into a black hole at the City of Stirling. I did Built Strata and my development was assessed end of May (completed and tenanted mid April) and then with the privatisation of all the inspectors they lost most of theirs and my BA16 sat in a file for months until I realised that I still didn't have my Title.
My titles finally was lodged with Landgate last week and I should have them in a couple of weeks.
So, I suppose my question to you is if Council need to do any work on Survey Strata you may need to factor in delays caused by them.
 
Cheers Aaron,
There are only 2 units involved (one retain and one build).
I have been told that whilst banks will lend 80% for a standard construction (after titles are issued), some banks will only lend circa 70% for the Build-then-subdivide model because of the added risk involved (ie the small possibility that titles aren't issued once the house is constructed). I should note though that if I secured lending for 70% of the construction AND subdivision AND siteworks etc (which I am advised they will), then this is probably more than the 80% of the construction alone.

That would generally be

BWA, WBC and ANZ

I think youw will find most others will do 80, some 90 and depending on $ value maybe even 95 !

ta
rolf
 
Hi there,
So having finally bought my first property I'm now looking to subdivide and build on the back lot. I am faced with two options and am having a bit of trouble working out the best way to go. (note I am in WA, so i'm not sure if the jargon will differ for other states):

Option 1 - Subdivide THEN Build:
The standard 'survey strata' development process: Subdivide lots, gain new titles, construct second dwelling.
PROS: *Bank will allow you to access capital generated (hopefully) from subdivision, therefore funding the construction deposit.
CONS: *Subdivision/siteworks costs can't be included in loan.

Option 2 - Construct THEN apply for titles (subdivide)
This is know as 'Build Strata' in WA, but note the outcome is still a survey strata title, same as option 1.
PROS: *Can be 3-4 months quicker, due to not having to wait for council to approve subdivision.
*All subdivision/siteworks and construction costs can be included in the loan;
CONS: *Possible bank will want lower LVR due to increased risk;
*Full deposit due at project initiation = higher holding costs;

I have crunched the numbers and it seems to me that the increased holding cost of option 2 (due to higher deposit, due sooner, and not being able to use equity from subdivision) is about the same as the rental income produced by the faster project completion. Meaning: I'm not sure which is the better option!

My question therefore is: am I missing something? Is there a reason why someone would favor one option over the other? Have people decided between the two themselves?

Cheers guys :)

Oops ...only meant for the last few lines to be quoted.

The block we intend to subdivide off is only small (<270m2) so we opted for subdivision first to ensure it was passed before building on it. We didn't want to end up with 2 dwellings on one block which in the lower socioeconomic area would mean it would be harder to sell off later (as a package).

Hence stll waiting on approval 2 months later.:(
 
So I have had another chat with my broker and it appears that Homeside will lend 80, 90 percent (with LMI) based on the lower of two valuations: a) the value of land + fixed price construction contract; or b) the 'as completed' valuation. You would certainly hope (A) was the lower or you'd be in trouble!

Turns out thought that, in the case of Homeside, subdivision costs cant be covered in the overall loan value for the subdivide-then-construct option (unless they are somehow included in the fixed price building contract). Does any one know any creative ways to have these included in the contract/loan?
 
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