1:4 subdivision loan

I have a home on 2 acres in Brisbane and have DA approval to split into 4 blocks with the existing house being retained on the rear lot. I originally got the OK for the development funding from Westpac business but now they’ve said they aren’t interested as it’s too big for residential lending but too small for commercial. Our serviceability is no issue it’s just finding the right lender that hopefully won’t require me to sell a kidney. Any suggestions?

 

St G might do it at 60% LVR

 

I do one of these every couple of months, can be done to 80%, but the valuation will come in about 75% of what all the properties are worth individually. $395 annual fee, no QS, draw down, line or set up fees. Standard resi interest rates and you can use future rent to show servicing.

 

I was planning to sell the land vacant the realised lvr (I think that’s what it’s called) will be no more than 60%. Does it matter if the blocks are being sold vacant?

 

I may be missing something here, why do you need finance to sell the vacant blocks with a DA? Are Westpac blocking the subdivision?

I thought you were going to build the three units.

 

Just do the work for subdivision and sell 'off the plan', once you have the first sale get the mortgagee's consent to subdivide and sell at that point.

 

No, I’m subdividing the existing property into 4 lots. 3 will be vacant blocks of land and the other has a house on it (my house). I need money to carry out the civil works (sewer, water, electrical, easement driveway etc).

 

Ah, I see. When you say driveway, do you mean road? Will all the properties be freehold or is there a Strata involved? Is one builder going to build all three or will they each get their own builder? Need to be careful here or you may find the purchasers are unable to get finance.

 

All freehold blocks on their own titles. The driveway is a shared access strip/road. Each buyer would be free to use whatever builder they like.

 

Perfect, in that case it's just a matter of finding a lender that will give cash out to fund development costs. I can think of a few I would be 95% sure they would do it, but I would have to check.

 

You are doing a land subdivision development - thats pretty simple but resi lenders aren't going to touch it unless it has a construction of a dwelling involved.

This is a commercial loan and the feedback from Westpac is correct in that you don't fit resi and you are too small for commercial. Remember the commercial guys are funding multi unit developments. St George will give you the same response (as will most lenders).

So there are heaps of people like you but its a grey part of the bank that doesn't service these types of scenario or clients.

You will need to use a commercial development friendly lender that will lend on end values.

Your LVR seems ok so just comes down to using the right lender.

 

I was hoping to stick to a resi loan situation to avoid massive interest and application costs. The offer I have from a non bank lender is much higher than I’d anticipated and they don’t allow capitalisation of the interest which isn’t ideal. I just want to know if anyone has had luck in a similar situation and know of lenders that might look at it favourably ‍♀️ I’m about to move on to operational works approval but I’m hesitant to outlay anymore money if i can’t get the money to carry out the actual civil works?

 

How do I find the right lender?

 

Keep contacting lenders or reach out to a broker experienced in the area and leverage their knowledge.

 

I owe $560k and I bought the place for $820 18 months ago. Not sure if it’d be worth anymore than that now I’ve got the DA?
I need about $400 to do the civil works and the very conservative realised value would be $1.9 for house and 3 lots.

 

Is cash flow an issue?

If you need the valuation based on the subdivided land to keep the LVR acceptable, this will have to be done as a commercial loan. Do you have equity in any other properties?

 

Sadly no equity in other properties.
I’m hesitant to proceed at the current non bank offer as it requires approx $1700 week repayments and as we are self employed our income fluctuates month to month. If I were to proceed I’d need to save up a good buffer to feel comfortable. The other option is a private lender that offers interest capitalisation but I’ve been told the interest rate is up to 12% and 2% application the DA is staged so I might look at initially doing a 1:2 do you think that would be achievable with a resi lender?

 

My opinion is don't bother asking for residential loan, it not a resi loan.

You need a development/commercial loan and it's a big PITA.
There seems to be a 5mil threshold under which nobody wants to talk to you.

Plenty brokers will say "sure we can find someone..." and then reality hits.

Other options could be a JV or private lending. 10-15% i reckon.
You could also sell a put option on one or two blocks at about 10% (@10% discount) of value to buffer cash flow.

I would'nt do a 1:2 unless the "2" is as small as the last stage.