How to finance building costs for own expenses

I'm in the final stages of getting house plans drawn for two houses that I'm building and I'm working closely with my builder to save on costs where possible. He has already told me that he will give me a breakdown of his supplier cost for things such as tiles, carpets, air-con units, stoves, etc.

He is happy for me to remove those items and purchase them myself and have his guys install them as I'm fairly savvy and can buy them cash at higher discounts (he's not a volume builder).

If we do this then the fixed price contract will be lower and I'll have to use my own cash to purchase those items. I'm wondering if there's a way to get finance from the bank and park it in the offset and spend on those items.

I do understand that construction loans are paid in stages, so I am really just looking for ways to avoid draining my own account whilst saving on building costs... Any ideas??

 

Yes you can - these are known as 'out of contract items'. Not all lenders are ok with this but overall it is possible. There are limits - so ideally keep the number of individual invoices <10 and total spend on out of contract items <20% of the build contract price.

You just provide the invoice/quotes at the point of application and then when it comes time to pay the bank will distribute the funds once they are installed/setup. With some items this may mean it more practical for you to pay for the items via cash and then be reimbursed by the lender.

 

Keep in mind the interest won't be deductible if you pay for things and are later 'reimbursed' with a loan.

 

It's fine to do, but you don't get the cash first. Once it's installed, the bank reimburses the builder, or as Corey said, the supplier.

 

Awesome. That will help with cashflow. I'll look at the loan structure when the time comes.

 

I've spoken about this before but just a warning I did this exact same thing and got one of the more unfavorable valuations you will likely see.
The valuer used as comparable an unfinished house 15 suburbs away and said because their are items not included in the contract that he deems the house uninhabitable. All the labour was included in the contract as well.

I provided all the quotes for the items that I would be purchasing but didn't make a difference.

I had the cash to cover the shortfall so didn't need to valuer shop but with push now coming to shove it's getting tight.
Here is hoping prices remain high so I can pull out all the equity stuck in their once completed to cover the horrid valuation.

 

I'd assume that pulling equity out will be easy as they'll re-value once you've finished the house?
I have plenty of equity in another property that I can use if the valuation doesn't stack up but I'd obviously prefer to avoid that... Thanks for the tip!

 

Then you have to overcome the cash out policies!

 

Don't assume, as terry said there are another set of issues, and it also mucks up your tax, if the purpose of the new loan isn't to build an investment property.