Subdivison Financing Question

Hi,

We're hoping to undertake our first subdivision project soon and the numbers seem to stack up with the bank and the project itself. One thing that would really help us keep the LVR below 80% as we keep spending more on the project is to be able to get the block revalued once the plans are sealed to split it in two. My question is whether this is possible/normal, to get a bank reval part way through a project so that the equity recognised by the bank increases and you can keep borrowing without getting into LMI territory?

To illustrate with some simplified/example numbers, if we buy a place for 1m with a 700k loan we're at 70% LVR. It will cost 100k to split the block and register the two blocks and 200k more to get the two blocks ready for sale. We want to spend 100k (to make the loan 800k and 80% LVR) then get the block revalued to say 1.2m so that the LVR drops to 67%. We would then spend the remaining 200k to take the loan to 1m and LVR to just over 80%. If we didn't get the reval we would have the 1m loan against 1m of equity (original block value) which wouldn't work. Is this interim reval a normal strategy with banks to keep the LVR reasonable while a project is ongoing?

Thanks

 

You can do another valuation once the titles are issued. You can take each title to a diferent lender if you like.

You could get a pre approval subject to plan of sub but you can only borrow against the value of the parent title, unsubdivided.

The issue for many is finding the subdivision costs. These have to be funded from another source.

 

Thanks Tobe, we were planning on refinancing the existing portfolio to 80% and use a portion of the equity freed up as a deposit for purchasing the place and the remainder for the subdivision costs. The part way reval on the blocks should unlock enough equity by releveraging to 80% to complete the project.

 

You can reval once the subdiv is completed, not part way through.

Once at the beginning which will incorporate land value and spend on the build, it won't take into consideration the additional equity planned to be created from the subdiv, only solid costs.

Second after the subdiv is completed and this will take into account equity realised in the land value of each title and build cost; effectively the conservative end value of the project. You can get a few vals done at this point with different lenders to find the best outcome.

Third after completion of the project and this will incorporate all equity created from the project. Again you can have a few vals done with different lenders if you need to access equity.