Having trouble with next loan approval

Unfortunately there's several problems here...

1. The lenders being used aren't very generous in their servicing calculators. As previously stated BankWest is generally fairly bad for investors. Macquarie was once quite generous but their policies were changed in June and they're no longer considered a generous lender for investors.

2. Different borrowing through ownership structures doesn't actually increase your affordability, it can reduce it in some cases. There's a lot of misinformation about this, many people believe that putting borrowing some in one name and some in the other name can increase your affordability. This simply isn't true. In this case by borrowing in joint names then trying to borrow in a single name, the affordability takes a significant negative impact.

3. Starting a construction project with a low LVR. The LVRs for the IPs are both around 90%. The way that a construction project can be valued, the LVR may potentially increase in the course of the project. Starting with a 90% LVR means that some cash will likely need to be put into the deal to keep it below 90%.


The best solution is tricky to understand without knowing everything about the scenario, but some ideas:

It might be possible to change to a more generous lender, but starting with a 90% LVR probably means paying LMI again. This probably isn't a practical solution.

Most having both people on the construction loan will solve the problem. The actual ownership of the property can still be in a single name but both incomes are probably needed to make this work.

Additionally it may be necessary to contribute about 10% of the construction price to the deal to keep the LVR at 90% or lower. This depends of course on the outcome of valuation.


The simple fact is that a couple can borrow more by combining resources than by trying to do things separately. Changing ownership strategies part way through can make this even worse. This might not be ideal for tax planning and asset protection, but separating lending structures for affordability purposes is misleading.

 

Before you consider the finance complications, I'd consider the project as a whole in terms of over-capitalization.

You have a property worth 300k, want to spend 150k for a projected end value of 450k?

I'd be expected a greater capital gain increase for add value projects more like 1:2 dollar spent to gain ratio.

Lastly how do you even know you will get 450k for Kingston, have you done market research here? 450k in Kingston would put it on the upper end price point, unless it's a big block with development potential? and for that price point home owners would be looking in different suburbs, regardless of rent achieved.

 

I generally agree, most of the examples I've seen of people adding granny flats is it doesn't add much more value to the capital value of the property than the cost of building it.

It does have a positive effect on cash flow however. In this example for the cost of $150k, it's adding $300 per week in rental income - a 10.4% yield.

In a flat market, this is better than the combined growth and yield of many other properties. There's definitely a good argument to adding a granny flat.

Keep in mind that even a 10% yield does not necessarily increase your serviceability with the banks. It will increase your personal cash flow overall, but the banks have different criteria for servicing purposes.