Subdivide first ——
*If you do subdivide the bank will issue a new loan for each subdivision, ie if you have 3 titles = 3 separate mortgage/loans, all done within it’s own merits ( own LVR, valuation )
* If you go down this way, you can stay with the same lender or If you choose to shop around and find a new lender; you can potential have 2 new lenders each securing one portion of the land (one title each etc) –
* in regards to the construction; for the empty land- you would apply for a vacant land + construction – depending on which lender this is allowed up to 90-95% of the valuation/market value LVR
2. Build first then subdivide
* You would have only ONE title- so only ONE lender securing property + the construction cost
* This option provides less flexibility ( explained below)
* Apply for a new loan ( some banks allow a split loan into your existing) ; the new loan would be a construction loan.
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For both options, the bank will be fine with the construction as long as you afford to service the loan your after and you must have all council approval, fixed price quotes and plans set and ready before they will consider your loan.
I would say option 1, is a far more superior option in term of protection, since im guessing this is your first development project. Reason i say that is; option 1 allows you to change lenders and find new competitive rate for EACH land ( so if you had problem with your current lender you can simple change it over) . Lastly if you gotten your self into some unforeseen financial problem; you can simply place one of the construction on hold or simply sell one of the land off to offset any short falls.
Forgot to add: Depending on what your purpose is: ie build and sell? or rent out- it’s an good idea to speak to your tax accountant first if your planning on adopting the build and sell strategy as CGT would be potential be in play and if done correctly you could save thousands on CGT
Lastly either way make sure the new loan you apply for is a SPLIT loan- DO NOT add it to your existing PPOR loan – very important loan structure if you want to claim the full tax deductions.
Regards
Michael
From Michael - propertyinvesting.com