Funding a renovation

Discussion in 'Property Finance' started by aroe, 8th Jan, 2019.

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  1. aroe

    aroe Member

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    Hi all

    Just looking for some opinions from the brains trust.

    We own a terrace in Sydney (currently ~78% LVR with CBA), and are looking to renovate significantly - additional storey, additional bedroom, new kitchen, bath, living, etc.

    We will be owner-building with help from immediate family.

    Cost estimation is approx. $150-180k, with us holding approx $100k in cash. What would be the most cost effective/easiest way to raise the shortfall of $50-80k?

    I assume banks wont want to touch us due to the owner builder factor? Personal loan?

    Cheers!
     
  2. Trainee

    Trainee Well-Known Member

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    What will you do with it afterwards?
     
  3. aroe

    aroe Member

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    Live in it, for at least for foreseeable.

    Maybe pull equity out further on down the road.
     
  4. Trainee

    Trainee Well-Known Member

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    Sydney 80% lvr, significant reno. Market not going anywhere.

    How are you planning to pay back the loan?
     
  5. aroe

    aroe Member

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    Two decent incomes, no dependants or other significant overheads. Not too worried about serviceability - I would think even at unsecured rates a $50k loan is not going to be too much to worry about.

    We went lean on the purchase to keep some cash up our sleeves to fund the bulk of a renovation.
     
    wylie likes this.
  6. Shahin_Afarin

    Shahin_Afarin Residential and Commercial Broker Business Member

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    Easiest way is to do get your broker or banker to order some upfront valuations with a couple of lenders and see if you can do an equity release up to 80%.

    If the valuations come back short then you will need to fund it via a construction loan.

    Yes lenders don't like owner builders but there are some niches out there. Are you a registered builder? If you have an ABN then your company can prepare a fixed building contract to you the individual.
     
  7. aroe

    aroe Member

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    Thanks Shahin. I am not sure we'd be able to pull out much at this point - we are just under, or even on 80% already.

    No licensed builders available to us unfortunately, only trades. It is my understanding this makes a construction loan even less palatable for the lenders - I am not sure how the fact we'd only need a small top up would come into play though, as well as the fact we'd be generating a stack of equity.

    Cheers.
     
  8. Ghoti

    Ghoti Well-Known Member

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    I have a similar situation in Melbourne, albeit with a better LVR. I simply went to my bank and asked what the max was I could borrow for non-structural renovations. They came back with $105K, P&I at 4%. So I asked for a $105K loan for renovations and had the funds in my account later that day. All up LVR is now 71%.

    I have registered as an Owner Builder (required in Vic) and will be demolishing the rear 1/3 of the premises, adding a bedroom, bathroom, kitchen, family, alfresco, garage and carport. Of course the bank funds will only be for the non-structural stuff :rolleyes:
     
  9. aroe

    aroe Member

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    I wish we had the equity to lean on!

    What compelled you to specify non-structural in your request? Are there any traps for beginners surrounding this?
     
  10. Redom

    Redom Finance Strategist Business Plus Member

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    How much is the house worth? Do a few desktop valuations and try and release equity this way.

    If not, personal loan. Once renovation is complete, refinance the loan (higher val) & pay back the personal loan. Assuming the renovation adds value of course.
     
  11. Shahin_Afarin

    Shahin_Afarin Residential and Commercial Broker Business Member

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    You may be lucky as some lenders do system vals and they may come back in line with your expectations. You have nothing to lose by trying - they are mostly upfront and free.

    Since the work is structural you won't be able to do it as an owner builder unless you are a registered builder so that throws that option out the window.

    I think you think to consider the first option.

    May not be applicable but will throw it out there that if you are a medico, solicitor, Accountant, etc you may be eligible for 90% no LMI.
     
  12. aroe

    aroe Member

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    Thanks everybody for the input.
    Will chat to the broker/bank in any case, though my gut feel is we'll end up with a personal loan be able to pull out the equity post build.

    Cheers!