Is this a terrible reason to owner build...

CallMeBetty · Feb 07, 2024 9:24 pm

We have approved plans to build a house that will expire in a couple of years.
We can't get a loan for the whole amount required to get a builder to build it.
However we can raise the money for about 4/5 of the amount required.

Would it be a terrible reason to owner build, just so that I can start now and keep going till we run out, and then plug away as and when we get the money to do so? Is there a stage before completion when we (family) would still be allowed to move in there and complete it as we go?

I have no building knowledge so that terrifies me. But I have a couple of days a week free that I could use to learn/manage/consult - maybe I could hire a project manager to give me advice and inspect stuff?

I know it's not the greatest plan in the world but it seems preferable to waiting for interest rates to drop and borrowing criteria to loosen so that we can finally build.

How bad exactly is this idea...

chippy · Feb 07, 2024 9:45 pm

CallMeBetty

We have approved plans to build a house that will expire in a couple of years.
We can't get a loan for the whole amount required to get a builder to build it.
However we can raise the money for about 4/5 of the amount required.

Would it be a terrible reason to owner build, just so that I can start now and keep going till we run out, and then plug away as and when we get the money to do so? Is there a stage before completion when we (family) would still be allowed to move in there and complete it as we go?

I have no building knowledge so that terrifies me. But I have a couple of days a week free that I could use to learn/manage/consult - maybe I could hire a project manager to give me advice and inspect stuff?

I know it's not the greatest plan in the world but it seems preferable to waiting for interest rates to drop and borrowing criteria to loosen so that we can finally build.

How bad exactly is this idea...

Hi
Unfortunately I think the biggest issue will be the actual loan. While you may be able to borrow a certain amount of money the bank may not lend you that money for an OB project.
A bank will give you a construction loan based on approved plans and contract with a builder. Banks really don't like lending to OB's for exactly the reason you have outlined
A bank always looks after it's interests. If you get half way through the build and run out of money, then default on the loan, the bank see's what's built as a liability.
If you want to OB and you can't self fund it then you will have to jump through hoops to get a loan from a bank and it will involve proofs that the whole project will be completed to a fully saleable point.
There are work arounds but it really depends on the capital you have in the land and also cash on hand, but generally OB and banks don't play well.

CallMeBetty · Feb 08, 2024 12:11 am

Sorry I probably wasn’t clear enough - we can self fund 4/5 of it - wondering whether it’s worth OB’ing just so I can at least get 4/5 of the way through and then plug away as more comes in! Ideally while living in it, if it’s at an appropriate stage by then…

chippy · Feb 08, 2024 11:04 am

CallMeBetty

Sorry I probably wasn’t clear enough - we can self fund 4/5 of it - wondering whether it’s worth OB’ing just so I can at least get 4/5 of the way through and then plug away as more comes in! Ideally while living in it, if it’s at an appropriate stage by then…

It would all come down to being able to get an occupancy certificate.
Ultimately what you can do and what's legal to do are 2 different things.
I've renovated houses and lived in them without a kitchen, just cooking and washing up in a laundry while we carried out the renos. However you can't move into a new house without a kitchen because you couldn't get an occupancy certificate.
Things like floor coverings, window treatments, painting, fitout of robes, landscaping etc probably don't have to be done.
Probably the best bet would be to have a chat to a building surveyor and get the exact details about what has to be completed to get the occupancy certificate, and then work out if you can get a build to that level with the funds you have available.

As someone who has OB their last 2 houses I will give you a little bit of advice. If you have no experience in construction you are immediately at a disadvantage. The build will take you longer and will cost you more than if you know what you are doing and have experience. And secondly, unless you have extreme discipline, OB's usually go over budget because it's easy to make changes as you go and "upgrade" little things which end up blowing the budget. I would advise to always have a 20% contingency built in to cover unexpected costs and blowouts.

building-expert · Feb 08, 2024 11:38 am

Waiting for the interest rates to go down is also waiting for the building prices to go up, you will likely lose.
Perhaps you can get the builder to lock up stage, but before that take your building design and specification to the "boning room" together with your expectations. Trim off everything that is not absolutely essential.
Once you are at lockup you will have picked up some experience along the way and you may be able to OB the rest.
Get professional advice before you sign the contract and along your build.

Great advice from chippy