Sometimes, bigger is not always better. There has been a noticeable trend of late, with customers looking to build as many homes on their
available space as possible, without being aware of the potential tax implications, extended timeframes and lending restrictions which significantly
increase the level of risk especially when the post-COVID market is already rife with warinesses.
Customer Situation
This particular customer approached us with a goal in mind of expanding his rental portfolio by building an additional dwelling to rent out. This would
generate some extra income as he is nearing retirement. He owned a fantastic, relatively large, empty section that he had already sub-divided from
the original Lot which contained an existing rental property of his. The site had available on-site public services, within the Mixed Housing Urban zone.
He had been working with a housing company who had proposed developing the site with 3 x double storey 80-100m², four-bedroom homes with double garage.
The total approximate cost was $1.5 million and the projected total timeframe was 1.5 – 2 years to complete. The value of the completed development
would have been around $2.45 million generating an equity value of $950,000.
These figures look fantastic, so why didn’t he sign the contract?
When breaking down the risks in developing a project this size, specifically around his personal development goal, there were a few external factors that
influenced his decision. These are often overlooked by investors once a large equity gain is on the table.
The first factor is that when building multiple homes, banks change their lending terms and offer an interest rate which is a lot higher than the standard
mortgage loan to cover the increased risk associated with multiple home developments.
