3 Townhouse development loan problem

Discussion in 'Loans & Mortgage Brokers' started by Steve0810, 14th Apr, 2020.

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  1. Steve0810

    Steve0810 Member

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    I have found a land with single house which has DA for demolish and build 3 townhouse. As my goal is to sell after build, which loan is most suitable and profitable for me? I also have 2 partner and can apply for loan together.
     
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  2. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Plus Member

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    Bit of a vague question - a residential loan is the general answer.
     
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  3. Shahin_Afarin

    Shahin_Afarin Residential and Commercial Broker Business Member

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    Not all lenders will do 3 unit construction under residential lending so firstly shortlist the lenders that will do this under their policy under residential lending (lenders such as Westpac/St George at lower LVRs, NAB @ 80%, etc). You do not want to do 3 unit construction under commercial lending - it can be very expensive. So using the right lender is very important here.

    Then you need to look at other important factors such as servicing, valuations, etc.

    Valuation is a big one as valuers will value in one line so the valuation will be shaded by roughly 30%. For example, say each dwelling is worth $1mil by themselves so thats $3mil in total. In one line they will be valued at roughly $2,100,000 so the bank will lend you 80% of $2.1mil including land loan. So this means you would need considerable amount of cash to fund a project.

    Another thing - if your intentions are to sell all of the dwellings then lenders will ship you to commercial lending even if 3 units falls in their residential lending policy as they will deem it as a commercial transaction.
     
  4. Peter Pakarinen

    Peter Pakarinen Member

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    As Shahin said. Also the properties will need to be strata if you are intending to sell. Can you service the entire debt. If not then some of the properties would need to include rental income. If you intend to sell, check with the lender you can do this - how you structure is important to getting the loan through.
     
  5. Lindsay_W

    Lindsay_W Well-Known Member

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    Well, not 100% necessary, eg. if looking to sell as 3 on 1 title.

    This can be done via residential lending however if you say you want to build and sell straight away most lenders won't want to touch it as it's technically development finance and therefore becomes a commercial lend (more expensive) So any application for finance needs to be presented in the correct way from the beginning, don't recommend asking the lender if it's ok to sell.
     
    Last edited: 14th Apr, 2020
  6. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Plus Member

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    I wouldn't be asking the lender if you can sell either - it might tip them off on your intentions and mean commercial. A lender cannot prevent you from selling anyway.
     
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  7. Peter Pakarinen

    Peter Pakarinen Member

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    You are correct - Was just thinking inline of selling one / two not three, property needs to be Strata . Loan is initially 3 on 1 title. Once strata complete, refinance into 1 or more separate loans depending on how you want to structure debt / ownership etc.
     
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  8. Steve0810

    Steve0810 Member

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    Therefore, if I tell lender my intention is for living, I can make it home loan. I still have following questions.
    1.Will it have any effects on the following construction loan?
    2. Now the DA has no strata subdivision. If I prefer to selling them all after completion, should I do strata subdivision after completing?
     
  9. Westminster

    Westminster Tigress at Tiger Developments Business Member

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    If you haven't bought it yet then there are lots of things to consider

    1. feasibility - this can be hard to do if you are just starting out and you want to make sure you understand all the infrastructure costs, tax implications (income/company tax, CGT, GST etc) and you may find that it makes no money
    2. tax/legal structure - it might not be best to do it in your personal name or it might not be. Seek some legal and tax advice
    3. Finance - often you will want to buy the project site with the lender who you want to use for the construction loan so seek some advice from a Broker and find out if there is an appetite to lend in the area, how much deposit you will need for the project site AND the construction loan. If you don't have enough deposit then there is no point buying the site
     
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  10. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Plus Member

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    Property loans for Devs will be far harder next week than this week. Lenders probably have zero risk tolerance at present and it will get worse before it improves
     
  11. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    Your heading is " problem" if all the risks are mitigated and you pre sell one or 2, where be the problem ?

    3 OOT is bread and butter stuff for most brokers, but not many lenders.

    ta

    rolf
     
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  12. Lindsay_W

    Lindsay_W Well-Known Member

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    living in 3 townhouses? hmm
    I suggest you get a broker, don't go direct to the bank

    Are you intending to sell all 3 to one buyer or are you going to try to sell them separately? Have you 'done the numbers' ie. feasability?
    Any experience doing something like this before?
     
    Last edited: 16th Apr, 2020
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  13. Steve0810

    Steve0810 Member

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    I am intended to sell them separately. We have builder license but do not have much experience about this kind of loan. That's why we need to make sure the finance could be ready to commence buying.
     
  14. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Plus Member

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    Builders licence - looking more and more commercial
     
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  15. Steve0810

    Steve0810 Member

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    But if we just need to buy it through 3 family trust or individual, does it affect? We would not show that we have the builder license as we have not got a company yet.
     
  16. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Plus Member

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    who is going to build it?
     
  17. Steve0810

    Steve0810 Member

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    We would build it. But does it affect when we buy the property?
    Please clarify as I know quite little about loan.
     
  18. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Plus Member

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    when applying for construction finance the borrower will need to provide the construction contract with the builder...
     
  19. Steve0810

    Steve0810 Member

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    Does it mean it will not affect we buy the property using home loan?
     
  20. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Plus Member

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    no
     
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