PPOR & Investment Home Loan Property Development

kamac93 on 15/06/2020 - 16:31
Last edited 15/06/2020 - 18:38 by 1 other user

Hi, I'm after someinformation regarding a small development I am preparing.

To keep it simple, I live with my mum, she owns an old house on a 738sqm block. We are planning on subdividing it into 3 lots. I am a surveyor and working with a licensed surveyor at my company with help on the subdivision application. In other words, the lot meets requirements to split into 3. The idea is to build 3 houses, 1 for each of us and 1 investment to rent out. Our plan is roughly:

  • Subdivide into 3 lots (2 under my name, 1 under hers - she would rather have me have the title due to her retiring soon and she would like to be eligible for a decent pension payment) This means as I'm a FHB, i would pay no stamp duty on one of the lots.

  • Build 3 new houses ($120k paid by grants in WA - $55k FHOG for me, $45k grant for my mum for a new PPOR and $20k on a new build for investment).

Rough estimates on cost.
- $100k - Subdivision + Civil works (slope on one side of lot)
- $580k - 3 new dwellings ( 1x$220k, 2×$180k)
- $680k total
We have
- 120k in cash savings
- 120k in future grant refunds from state and federal government

Meaning after the development we have roughly $440k debt (with hopefully a tenant assisting repayments eventually).

I earn ~$75k A year and mum about $50k.

I was wondering if anyone has any experience in a similar position. I am after information on financing of such a large amount and where would be the best to obtain a loan - bank v broker etc. And if anyone has experienced getting a $680k loan with $120k deposit.

Any general information or suggestions from people who have undertaken such a task would be greatly appreciated.

Financial

Comments

  • iampoor on 15/06/2020 - 16:42
    +2

    Build cost seems really low - if that gets bumped up your serviceability of the loan would be in doubt.

    Best to confirm the build cost as that can quickly spiral out of control.

    • kamac93 on 15/06/2020 - 17:01

      Those are for roughly 160sqm houses. I was quoted 165-180k costs for each, hence taking the cautious approach. Also most likely will save some $ on building 3 at once. What other costs may appear that I initially not have considered? Cheers!

      • garetz on 15/06/2020 - 18:30
        +3

        You have not considered contingency funds, you should allocate at least 20% for this.

      • iampoor on 19/06/2020 - 11:41

        Does the quote include the actual tender which lists all the individual items? Have a look at that and see if you are happy with it.

        If not, factor in the prices of "upgrades" etc. Some of the things they consider upgrades can be ridiculous, Metricon wanted extra to install toilet roll holders. When I built the upgrades added an extra 80%.

        Garetz mentioned contingency funds - this is a must. Things will happen.

        I'm not sure if your civil works include the site costs or if the house quote includes that, if neither does that is another cost.

        Don't forget all the "other costs" such as landscaping, driveways, mailboxes etc. This is highly dependent on what you go for but I would recommend budgeting at least $20-30K.

  • atris17 on 15/06/2020 - 16:50
    -3

    You would need a construction loan, expect higher Interest Rate then Home Loan
    Speak to a mortgage agent
    But you needs plans etc to convinced the bank

    • sweefu on 15/06/2020 - 16:53
      +3

      Broker here - construction loans with banks are not more expensive.

  • Seraphin7 on 15/06/2020 - 17:16

    Speak to a broker … in fact speak to a few. If you can find "the right one" with experience in these sorts of deals they'll be able to guide you through.

    The primary risks here will relate to build cost blow outs and the banks not being willing to extend further credit should this occur.

    What do you expect the final value of the three lots to be?

    • kamac93 on 15/06/2020 - 18:06

      Roughly 300-350k each house so total ~900k+

      • Drakesy on 15/06/2020 - 18:46

        How much of that is land value?

      • Seraphin7 on 15/06/2020 - 19:04
        +1

        Hmmm … there's not a lot of land value there. I've seen building costs blow out my enough to effectively wipe out the equity you've got there in your land. Not saying it's a bad deal, but you'll need to be careful with your sums and budget management here.

      • FXD on 15/06/2020 - 21:15

        What suburb is this in?

        • kamac93 on 15/06/2020 - 21:39

          Girrawheen

  • jjjaar on 15/06/2020 - 19:18

    Oh wow, interesting order. In VIC it is a lot easier and quicker to get approvals if you do the build first. But I guess for your scenario you’d want the title in your name for the grants. Interesting.

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