Advise on boarding house refinancing valuation

Discussion in 'Loans & Mortgage Brokers' started by G_Factor, 26th Mar, 2021.

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  1. G_Factor

    G_Factor Member

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    Hello fellow brokers,
    I am currently looking in NSW regional (Wollongong, Central Coast and maybe Newcastle) for site to build boarding house (up to 12 rooms) as I am trying to stay in class 1b build.
    My plan is to refinance the boarding house when its completed and use the money to pay off construction loan and take out equity to fund the next project.
    On paper everything looks like a good scenario, but in reality nothing is as expected, thus I would like to ask fellow brokers who had experience helping their client refinance boarding house.
    Is the valuation just based on nett rental income and multiply by commercial cap rate (ie. 5% or 6%)?
    If surrounding house value is also considered, how would the valuation be based on as there's not much boarding house on sale?
    The reason I am asking for help is I am trying to calculate backward so that I have a clear budget on the land acquisition.
    Thank you for all the advise and inputs, much appreciated.
     
  2. PropertyInvestorAus

    PropertyInvestorAus Member

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    Not a broker here, but a boarding house owner who is currently finalising a refinance.

    A few things to consider:

    1. You will not be able to refinance as a residential loan, you will need to get a commercial/business loan - rates are generally closer to 5%, if you get lucky you might find something closer to residential rates
    2. A lot of lenders don't want to touch it - I spent 2 years trying to find the right broker to work with and one that could make it happen
    3. You will most likely only get around 60% LVR

    The above is the hard part, the valuation is a typical standard valuation that is carried out - capitalisation and direct comparison approach (based on similar assets), then the valuer will determine the amount.
     
    Lisa T likes this.
  3. G_Factor

    G_Factor Member

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    Thank you for your advise, one reply is better than none. Just wondering why lenders don't want to touch it? A friend of mine goes to bendigo bank directly to refinance his boarding house. Is it more of a matter of being familiar with the asset?

    Yes, boarding house definetely have to go with commercial lending, no doubt about it.

    If I may ask, with 60% LVR, how much of your initial investment is refinanced?
     
  4. PropertyInvestorAus

    PropertyInvestorAus Member

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    Risk. "Boarding House" you tend to think of backpacker type accommodation. Times are changing but not the general view.

    My boarding house wasn't a typical build, so the costs would not be the same as you are looking at doing - so probably not as relevant.

    Also, when looking at new projects after completing it, you may run into issues with servicability as most lenders will not take the full rental of a boarding house (yes it's not the boarding house that will be financed but it counts to your servieability)
     
  5. Lisa T

    Lisa T Member

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    Hi Property Investor,

    Do you mind advising what "Cap rate" they used in valuating your asset?
     
  6. gach2

    gach2 Well-Known Member

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    Do you have any idea how much it will cost to construct? Im guessing your looking at 12 new generation boarding rooms (each with cooking/bathroom facilities)?

    Not having a go, just curious
     
  7. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    A REGISTERED Boarding house ? NSW has some laws that make this somewhat difficult. Boarding includes shared facilities not in-room etc (fire regs) Many lenders will baulk at anything unregistered as they are a demo risk. Commercial lending too. Council is a good source as they must approve a registerable boarding house which then becomes registered premises. Mega penalties can occur with mandatory inspections. If its a new build council will need to approve all plans and have some big setbacks etc. Parking etc. All varies whether its general or assisted living.

    The income is very chicken and egg and low cost boarding could even apply (land tax concessions). Low LVR is normal. 60% perhaps. Regional may be less.

    Boarding houses
     
  8. PropertyInvestorAus

    PropertyInvestorAus Member

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    Circa 5%.
     
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  9. PropertyInvestorAus

    PropertyInvestorAus Member

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    I believe they were thinking registered, otherwise there would have not been mention of the Class 1B.

    Under 1B, there really isn't much fire requirements at all. It's hard enough to get finance with it being registered - if it's not registered there is no chance.
     
  10. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    its not a resi investment per se

    Its a business, hence resi lenders dont want to carry the risk for the lower rate

    ta
    rolf