Buy now, knock down rebuild at a later date

Discussion in 'Loans & Mortgage Brokers' started by Gracie6, 29th Apr, 2018.

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  1. Gracie6

    Gracie6 New Member

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    Hi,

    We are looking at purchasing a property in a great location with land size of just over 1000m2, with an old, rundown weatherboard house on it. Aim would be to live in it for a year or 2, then knock down and rebuild our house to live in. Or if it's not fully liveable (it would probably be quite uncomfortable) we would live with family in the meantime.

    Situation is, our current pre-approved loan capacity is $858,000 loan based on 90% LVR for standard home loan.
    Property in question would be $900,000 so the loan would be approximately $810,000.

    I'm going to assume knockdown/rebuild costs of approximately $450,000, including demolish/site costs.

    1. What is the best way to structure this?? Obviously our borrowing capacity is capped currently so we would either need to earn more to help with this, or save to borrow the balance to fund the build?

    2. Is it an issue with banks for initial loan if house is unliveable? I assume they just value the land?

    I hope this makes sense and thanks for your suggestions.
    It's hard trying to get my head around it all!

    Cheers
     
    Gracie6, 29th Apr, 2018
    #1
  2. Terry_w

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

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    Consider ownership structure, CGT consequences and deductibility of interest AND serviceability - if you can only service for $X then you won't be able to borrow more unless you think outside the square.

    If the house is uninhabitable it could be that the lenders won't finance it at all, but it may be possible for finance based on the land value with some.
     
    Terry_w, 29th Apr, 2018
    #2
  3. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    Youd want to make sure you can do something with the land within period X.

    Otherwise a 90 % lend, rates and other costs will eat you out of house and home.

    Dont know your circumstances, but Id dare say that a 90 % lend at 1350 k land and build is a stretch, with a huge LMI premium and the 450 will possibly undercapitalise the land

    hopefully, when you have the land and house loan together, the end value will be closer 1800 k in which case LMI wont be needed

    ta
    rolf
     
    Rolf Latham, 29th Apr, 2018
    #3
  4. hobartchic

    hobartchic Well-Known Member

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    I would consider whether a block with a knock down is worth 900k before you do anything else. Suggest getting some advice, maybe talk to a buyers agent to take the emotion out of your decision. Right now you are in affect valuing the land at 900 k plus demo 30k ish.
     
    hobartchic, 29th Apr, 2018
    #4
  5. Tonibell

    Tonibell Well-Known Member

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    There might be better uses for 1,000m2 in a great location compared to putting a $450K house on it. If you can afford to do that, then great - but if you are borrowing 90% or more then perhaps you cannot.

    Is there potential for subdivision or multiple dwellings on the land ? THat might be a way of making it work.
     
    Tonibell, 30th Apr, 2018
    #5
  6. Tom Simpson

    Tom Simpson Well-Known Member

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    If you're capping out at $858k borrowing then you'd better seriously consider where you're going to get the $450k to build from otherwise this could be a rough ride.
     
    Tom Simpson, 1st May, 2018
    #6
    hobartchic likes this.