Loan to Build IP?

Hi all,

I'm after some advice on whether my partner and myself would be able to secure a loan to build an investment property. I would be looking to build it myself as I have had a licence for 20 odd years, build the odd home here and there and still work on the tools as a tradie.I understand the banks don't exactly fall over themselves for this sort of scenario but if anyone has a better option than ANZ ( current bank) I'm happy to have a chat. We live in a regional town. Our situation is as follows:

Own 2 Townhouses in regional city: value 980K mortgage 548K
-33K repayments pa.
-49K rental return pa.

Combined taxable income: 122K pa.
Townhouses rental return 49K
Rent from proposed property 25K

I own both my cars and my partner has about 5K remaining on her car loan. Only other expenses are rent 13K and day to day living expenses ( no kids). My question is: Are we in a position to borrow for the proposed house. The land cost will be 175K and construction cost 305K so 480K all up. Final value will be around 560K for this property. TIA.

 

You'll need to get a borrowing capacity done to be sure - it's not as simple as running a few numbers anymore.

You're likely going to be best off accessing equity in your TH's for the build - it'll be easier to do this than trying to get an owner builder loan, as the LVR's are really low generally and from what you mention above the land +build will be around 85%.

 

Doing this under your own license is classified as 'owner builder'. The banks don't like these because they know that statistically they tend to have significant cost overruns and a high chance of being unable to complete the project. Obviously this is a significant risk to any lender so there are few that will even consider it. Those that do put heavy restrictions in place.

 

Jess, I was thinking I would try to draw down 80% of the TH value to start with. When I suggested this to the broker from my town I touched base with he made it clear he hadn't thought of that. Hence why I think I might need someone with a bit better understanding of these types of deals..

 

Peter, is there any lenders that are a good fit for owner builders and don't restrict to 40-50% of value? and will most be happy to top up to normal levels once complete?

 

Also 'owner builder' and professional builder should be two completely separate entities I think but no use arguing with banks.

 

St g

 

St George does tend to be the goto lender for these types of deals. You're still looking at fairly heavy restrictions though.

If you've got the equity, it's probably easier to simply release it as cash, then use that cash to build. The risk here is that there's nothing to fall back on if that cash runs out (kind of goes back to the whole 'risk' discussion).

 

I certainly get your point. Ive seen plenty of professionals make a killing by developing a block and selling it.

Keep in mind, how often do we hear of 'developers going bust, or builders getting into trouble? It happens for a lot of reasons in the commercial space, I suspect it's often a way of delaying settlement or cancelling the deal (probably finance related as well).

 

My father is also a licenced builder. Would they treat a contract with him the same as any other builder or is it too close a relationship?

 

There's how you get this done. Through a third party who will supervise, but let you do the job.

Just make sure there's a fixed price building contract in place, along with all the permits, insurances and warranties.

 

This may be the best option in your scenario and also very common practice for many registered builders.