Browse Forums Home Finance 1 Mar 17, 2011 9:47 pm Hi All I was wondering if anyone has gone down the path that I’m contemplating and able to give me the benefit of their experience or any advice. I have a house that is on a piece of land that is big enough for the construction of 2 townhouses only if the existing dwelling is demolished as it straddles the middle of the block. I really like the area the house is in and would like to live and raise a family there one day so instead of renovating the current house I am contemplating building 2 townhouses. I have contacted the local council who said that they would consider an application on a block of my size for 2 townhouses. After purchase of the original property I lived in it as my PPOR however I have since moved out and the house is currently being rented. A family member is a registered builder who will be engaged for the build. Approximate build cost is $600k for both. Approximate sale value after build $1.4m for both. Upon completion of the townhouses I would like to live in one and rent out the other. In order to assess if the option of building 2 townhouses v’s renovating existing house is financially feasible for me I have the below questions. Note: I will definitely run these questions past my mortgage broker however thought it a good idea to tap into the wealth of information and knowledge on this forum Finance 1. What specific information would the bank require to consider funding this 2 townhouse development? Would I need to go and get some preliminary drawings done by my chosen architect/draftsman etc before going to the bank? Has anyone done this before and if so what is the process and approx cost? 2. How does the bank typically go about determining what amount they will lend for such a development? Is it based on a rough calculation on the value of the development and then give you 70% of that amount? 3. I take it that my repayments will begin once the first payment is made to the builder on completion of a stage (slab/footings and brick piers etc) and each stage thereafter? Does the bank send someone out to confirm that the stage is complete or do they just take my or the builders word for it? 4. What type of loan type would you recommend for this project and why? Line of credit? Tax/Accounting 5. From a CGT perspective I have been advised that once I live in the townhouse number 1 for at least 3 months after it is completed then if I choose to sell after that period then this is CGT free (not that I plan to). The reason being that my PPOR exemption from the original house transfers to this townhouse after 3 months of living in it. Townhouse number 2 however is not CGT exempt if I was to sell it. Does anyone disagree? 6. Am I able to claim anything from a tax perspective on the portion of the interest payments that relate to and contribute towards the building of townhouse 2 which will be the IP? I have heard about capitalization of the interest however have not investigated any further. Has anyone else heard of this or can elaborate any further? I am currently with the CBA on their Wealth package. Thanking you in advance Re: Financing development of 2 townhouses 2Mar 18, 2011 6:03 pm No problem your answers are below: 1. Initially just provide your lender with the proposed total cost, on completion value and potential rent income from the project. They can then give you a pre-approval subject to a building contract, council approval, on completion valuation etc. That way you don't waste your time if it is not going to happen! 2. If you can do it as a residential loan rather than a commercial one, then you can borrow up to 80% of the lesser of the land value plus cost of demolition plus cost of construction OR the on completion valuation. 3. For this large a project most banks would do an inspection at each progress payment. Some banks are insane enough to just do one inspection at the end. 4. Std Variable with a pro pack, as a construction loan. A Line of Credit would only be appropriate if you have sufficient equity in the property as is to borrow just using the current value. 5 & 6. Outside my area of expertise. Just to let you know there are a few things you should be aware of:
We finance a lot of small developments (<=4 dwellings). If you have any questions then please just send me a message. Good luck with your project! Re: Financing development of 2 townhouses 3Mar 20, 2011 4:31 pm Thanks heaps jb_money That's exactly the type of information i was after. Will have a look at those links now. Appreciate the extra information on what i should be aware of as well and I'll definitely drop you a message if i have anymore questions Re: Financing development of 2 townhouses 4Mar 25, 2011 6:52 pm Glad I could help, good luck with your project! multiple occ properties are always billed by trades at a premium, rarely per sqm for the lot. You either have trades you know whoe will do by sqm or youre going to get… 1 1060 Hi, does anyone have a clue how the Brisbane Development website work in terms of how uptodate the dates on it are (developmenti.brisbane.qld.gov.au). I transfered… 0 3318 Yeah I don't know why I came to a forum. Place is full of wierdos/pedos thought internet may help but I suppose I'll try my luck with someone in person. Cheers. I tried… 0 4080 |