How to finance dual occ. development

Hi All, we are embarking on our first dual-occ development project in Bayside Melbourne (the cheaper side).

Currently the architect is finalising the TP documents and hopefully it will be ready for submission this month.

In terms of financing this project, I may be able to contribute $400k from our reserve, however I’m thinking to use $300k max and leave rest for family & worst scenario contingency.

I have estimated the build will cost 1m including 10% contingency, question that I have :

1. When should I prepare for the finance for the build
2. Current finance capacity almost max due to serviceability but am hoping the proposed rentals will assist in getting the build money.
3. Would major bank fund 70% build cost, and any chance they allow for capitalised interest

Appreciate any feedback to those who done it recently. Cheers

 

Sounds exciting.

In terms of how much you may need to contribute:

- It will depend on the valuation process and result with your lender. Valuer will go in and value the land as well as review the construction documentation, and come up with a val result. We've seen cases were its simply valued at the land value + construction cost, and other cases where its valued as an 'in one line' val (i.e. value of the dwellings built if not subdivided). You should be able to get 70% of the valuation result with resi lending, likely higher 80% (and with some lenders in LMI territory too.

- Once obtained, you'll be able to work out an exact funds position and work out how much capital will be required. You'll need to factor in the existing loan amount on the existing dwelling/land into the equation to back out the contribution required from you. In general, 300-400k is usually enough for a 1m duplex project in Melbourne though.

In answer to your questions:

1. Will need plans, fixed priced build contract with PP drawn up with the builder, in addition to standard loan docs.
2. Yes proposed rental will be part of serviceability for resi apps. May be able to go down Pepper route if serviceability is restricted, who offer greater serviceability & will do dual occ construction. Rates aren't ridiculous either (although fees, vals, etc is a higher than standard lenders).
3. Under commercial loan options yes, but there's usually more hassle down this route (potential pre-sales, QS reports at different stages, more hoops). Servicing may be difficult with standard lenders here, but not so difficult with private/other options (some don't require it and can work around, albeit at hefty costs).

 

Hi Redom,
Thank you for prompt response.
Would you recommend drawing the equity from PPOR to fund the build? Overall I am conscious with "other lender" fees rates, etc. so hoping can keep this finance with the major banks.

 

1. Once you have final plans and firm build contract.
2. You might want to get servicing checked by your broker before 1)
3. No capitalized interest but you could borrow 80% and put 10% in offset to achieve same thing.

Whats the current loan and value of the land?

 

Many lenders expect you to spend your $$$ first before they will advance construction loans.
The finance issues are very important to the project and not a matter to consider late. If no lender wants to assist then its not a development project.

I would get cracking with your project savvy broker asap. Asking these questions now is quite late. Your broker could make or break this project. Lenders have variable policies and a savvy broker can work through the complexities.

 

Yes but doesn't mean you cant borrow 80% of costs instead of 70% just means you put in your 20% first instead of your 30% first.

 

Hi Marty,
The land was recently acquired with 80%LVR.
I mentioned drawing cash from PPOR as no loan against it. Would this be wise?
Cheers.

 

Hard to say on the info at hand. If you don't need to touch the PPOR don't. I would certainly not cross coll the PPOR with the development!! If the equity is needed far better to do a cash out loan against the PPOR then borrow against the development separately.

 

Possibly the easiest way to finance it.