Draw down equity to fund construction loan

Hi All,

I bought a property in NW inner Brisbane in March last year for $675k. I currently owe $600k. I've recently had the property valued at $750k. I want to demo the existing house and built a high spec home to sell. Based on my feaso I require a $1.25m construction loan to build the product I want to develop.

Assuming I can access 80% ($120k) of the equity I currently have in the property, will the banks let me use this money to fund the construction loan? I have strong support (two properties directly next door to mine on very similar sized blocks) selling in the $2.X range.

I earn $145k + super & my partner earns $90k + super.

Any advice would be greatly appreciated.

 

Hi Rolf

Not doing any subdivision. Simply knocking down and rebuilding.

Thanks

 

Your numbers don't add up.
You've had the property valued for $750K and you currently owe $600K you're already at 80%LVR. Most lenders don't like releasing equity at anything above 80%.
Do you have any cash savings you can put towards the deal?
$1.25M for the actual build costs or does that include the existing $600K debt?
Have you done similar type of knock down rebuild before?

Whether or not you can service the debt depends on current liabilities, expenses etc
This is certainly one to use a broker on but unless you have some cash available to tip in for the initial costs etc it's unlikely.

 

unlikely

 

Hi Lindsey,

Thanks for the response. Can you please clarify your comment re numbers. Ideally I'm trying to minimise the amount of cash required. Yes we have savings we can pay for certain costs up front but we would b a couple of years away from having 10% of build costs.

I've not done this type of project before however I am a project manager for a large national developer and my wife is an architect working for a developer.

I have begun discussions with our broker to get a better understand.

 

Not sure what needs clarifying?
You're original post you mentioned you have $120K equity available in the property but I can't see where you get that figure from?
You owe $600K
Valued $750K
80% of 750 = 600
So where's the $120K available equity?

If you have $150K of equity you can't borrow 80% of that equity amount, lenders base the LVR on the total property value.

These projects can quite easily take longer to complete than expected and holding costs aren't cheap, eating into your profit margin. Big project to take on as your first one.
What's the profit margin % you've worked out on your feaso?

Even so, Debt to Income ratio is going to be high even if best case scenario you can service the total debt.

 

perhaps confusing equity with useable equity?

 

Seems like a misunderstanding of both LVR's and equity.