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Built Strata Finance

Discussion in 'Property Finance' started by boeman, 17th May, 2016.

  1. boeman

    boeman Well-Known Member

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    Need some info please guys and girls.

    Building is my strong point, finance and dollar signs is not.

    My block has been rezoned and is a fairly simple retain and build (aka new 4x2 at rear and keep existing at front). Looking at doing it while build pricing is competitive/quiet.

    However, I need money to do this. From my understanding on the building side of things, we are always given a letter from the bank stating the client has the funds/finance to cover the build and off we go after providing claim breakdown.

    From the other end, how do I achieve this? I anticipate at worst $300k for the process, but obviously this would not suffice for the bank. Alternatively, I can go spend money getting plans done and quotes from builders, provide this to the bank and ask for the funds. This I am guessing would be dependent on anticipated end valuation. I don't particularly want to do this only for my finance to be declined, as I will need to spend some of my own cash as a deposit for plans or to contract one of my draftsmen to do this for me.

    So, from this end valuation, does this determine LVR? If final valuation would be $400k, will they give me $300k based on a low LVR, or will I need to pony up a 20% deposit in cash for the $300k build?

    Possibly a stupid question to others, but I live my life on the motto that no question is a stupid question.
     
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  2. tobe

    tobe Well-Known Member

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    If you want to finance it, you need a fixed price contract. The bank then does a valuation and doles out the money as the build progresses.

    You can get a pre approval first if your worried about being declined.

    Do you have a mortgage on the property now? There may be enough equity to borrow on the current house as is, without having to do a build contract.
     
  3. sanj

    sanj Well-Known Member

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    alternatively if you do a survey strata subdivision upfront instead (get your plans etc done in the meantime) you can then chop the block off and borrow against the rear to fund the construction.

    you'll find that the 2 separate properties will, barring anything pretty unusual, be worth more than as 1 block so if your LVR is tight this will come in handy.

    it will cost you a bit of cash upfront and so will the design but you need to work out what your biggest challenge here is and choose the option that best overcomes it.

    in the meantime spk to a broker about likelihood of getting finance. if serviceability is the issue then my scenario probably isn't going to help.
     
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  4. tobe

    tobe Well-Known Member

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    And you could borrow those upfront costs first if there is enough equity in the property as it is now.
     
  5. Newbie89

    Newbie89 Member

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    Hi guys,

    I am doing a built strata as well, Macquarie Bank has preapproved subject to Valuation.
    However, today they've done the valuation and requested the block should be split first (Survey strata) as there is no comparable sales in the area.
    Is this correct? I am sure there must be a way to revalue the property as higher than the existing house? ( I've got building permit from council so the only thing waiting for is finance)
     
  6. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Correct? Yes - those with the money make the rule.

    But whether it is acceptable or not is a different matter. You may want to try another lender.
     
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  7. tobe

    tobe Well-Known Member

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    You'll get a better valuation after strata is done.
     
  8. Colin Rice

    Colin Rice Mortgage Broker Australia Wide Business Member

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    First port of call is to complete a preliminary assessment via a broker experienced in small lot development finance. This is a matter of broker collecting key info of you and checking servicing, security on offer and bank policy. Most lenders do 2 on one title so choice will be wide.

    The value will be determined on a "as is" basis so existing house and land plus fixed price building contract. You will be able to borrow 90% of that. If enough equity is available in the existing dwelling you may need little to no deposit and that can be determined by ordering an upfront valuation report that can be back in 2 days. Outside of that the other option is a strata build if equity is tight?

    One lender says "cant be done" and another lender says "no problems". Happens all the time. I would aim to get a different valuer to do the next one (via a broker experienced in sub division lending) and also look for comparables to assist the valuer as it sounds like the one you got either genuinely cant find comparables or is being lazy.

    Where is the property located?
     
  9. Newbie89

    Newbie89 Member

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    I am in Ballajura, WA. Serviceability is not a problem . I will speak to the broker to see if she can find any other way.
     
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  10. Aconis

    Aconis Well-Known Member

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    What sort of percentage of equity would be needed in existing dwelling?
     
  11. Colin Rice

    Colin Rice Mortgage Broker Australia Wide Business Member

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    Would need another 300k to plonk a 4x2 on there inclusive of subdivision costs so 100k available equity will cover it with some change.
     
  12. Aconis

    Aconis Well-Known Member

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    Ok, so what would happen with a valuation/equity if this was a triplex and original house to be demolished.
     
  13. Colin Rice

    Colin Rice Mortgage Broker Australia Wide Business Member

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    Land value + building contracts x 80%, possibly 90%.

    I used to have a lender that borrowed against end values but they pulled the pin and do it as per above example now.

    There are a couple of lenders that will do still do it in the resi space at end values if DAP is in place.
     
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