How do I find out how much I can borrow for a Development?

Hi All,

My wife and are really keen to do our 3rd development and we've already started researching areas we like and doing our DD etc.

The challenge we have is we have no idea in total how much we can spend to purchase a property and then on top of that how much we could then borrow for the construction loan for the development etc.

Does anyone suggest any way to go about this, is it as simple as booking a meeting with a loan manager at one of the banks just to get a simple idea or potentially speaking to a mortgage broker to let them know our situation and what we'd ideally like to do etc?

The outcome I'd like to find out is based on our circumstances exactly how much we can spend max on a property and then again how much we could spend on construction etc. With this I'll then know where we stand and which areas/properties we should be concentrating on etc.

Any help/advice would be appreciated.

Thanks

 

You may be able to borrow about 60% of the gross realisable value (GRV).

 

Speak to a good mortgage broker is your best bet, they'll know which lenders have the best appetite for the kind of development you want to do. Can work out what you can afford to borrow to buy, build etc.
The key is to present it to the lender correctly, going direct you run the risk of them treating it as commercial transaction (more expensive, more deposit required) however it can be done via residential lending.
As a mortgage broker I do this fairly regularly for smaller developments of 2 or 3 townhouses or splitter blocks.

If doing that kind of development then there's no pre-sale requirement as you may already be aware.

You can borrow up to 80%+ based on end value of the construction.

 

I'm surprised after 2 developments your not sure of this.

If it's for a commerical loan,. I'd want to meet with a very good broker who specialises in commerical lending for developments. They will need to go over all your usual income/debts etc but you need to ( very importantly) also project into the future what the total amount of money you will need for the project will be, including soft costs. If demolition is required, how will the lender view the asset/income loss at that point? Also how business minded a bank is can greatly impact the conditions of any loan.

You need a good broker who understands development as well imho.

A lot of planning needs to go into this so your not left at some point with not enough money or unable to meet the conditions of the loan.

 

Thanks for your reply.

The first two developments were in 2012 & 2015 and were of significantly smaller size $ wise compared to what we are looking at doing now and also our circumstances are different to then along with the lending rules hence I really need some guidance on what we can/can't do before I go out and potentially purchase a property we don't necessarily want to live in only to find out we can't get a loan for the construction etc.

 

Thank you, yes it's ideally for a duplex build. Am I able to contact you offline to have a chat about our circumstances and get your honest opinion on what we can/can't do?

 

Absolutely I'll send you a direct message on here, you'll see it in your inbox (top right corner)

 

I'd want to get in touch with a good broker who understands development too.

 

In my experience, as long as you're doing the construction funding with them, they're not concerned about knocking down the existing dwelling as it's being replaced by acceptable security type and value,
This is only really a concern if you're planning on cash funding the build project, in that instance the lender has no control over the process and would be concerned about being exposed in the short term.

 

No expert on this, but I think they take the loss of rent into account when formulating the loan amount they will approve.

 

Speaking from experience, that's not the case, they take end rent value based on construction being completed, which is 99.9% of the time significantly more than the existing rental income.

 

This is exactly what I'd thought to be the case. They are more interested in the future rental value of the dwellings. I am not sure why it was an issue for someone I know. I think I may have misunderstood their situation. As for my financing, wifey takes care of all that as she's the CA. I just sign the documents

 

Can you be more specific with your development?

If youre building 4 dwellings on 1 title you can go down the residential side, which could lend you up to 80% LVr

If more then it will be treated as commercial which will be around 65%LVR