NSW Pros/Cons : Using the equity from existing home for knockdown rebuild.

Discussion in 'Where to Buy' started by rooster123, 17th Jan, 2021.

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  1. rooster123

    rooster123 Well-Known Member

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    For instance, if my existing home is worth $1m and owe $500k(pending loan).
    Current equity will be around $400k and have offset of $500k.
    If my new house (knockdown rebuild - KDR) construction cost is $850k.

    Can I use the equity ($400k) towards my new KDR house?
    If yes, what are pros/cons of using that approach?

    Appreciate your insights guys, thanks in advance.
     
  2. Westminster

    Westminster Tigress at Tiger Developments Business Member

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    It depends on if part of the equity is the value of the current house. If the land is actually only worth $700k then that is what you can use for your equity calculations
     
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  3. wombat777

    wombat777 Well-Known Member

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    I haven’t done a knockdown-rebuild before, however my PPOR was vacant land and then house build so can share the following insights / experience:
    • Don’t overcapitalise the build. You want to make sure that valuation at end of build will be satisfactory ( you will have issues if the final bank valuation is too low and bank asks you to contribute more funds at end of the build ). Don’t add too many expensive fittings that valuer may not consider in final valuation - valuer will use recent comparable sales to guide valuation.
      • Try to stick to builders range
    • Try to negotiate a fixed-price contract
      • I pre-negotiated some aspects of fitout prior to signing contract. This was to nail down costs before I presented build contract to bank.
    • Be wary of allowances for site costs (you want to make sure allowances are sufficient)
      • If your site has slope, trees in bad places, rock, problem soil types you can have a blowout in site costs
     
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