For investors wanting to develop three units on one property title, most lenders will allow a maximum of two units under their residential policy before a project is classed as ‘commercial’. When a project is referred to a lender’s commercial team, the fee and loan term structure is very different, involving higher costs both up-front and long term. Very few lenders (approximately 3 in the current market) offer this option which can result in substantial savings.
Benefits of A Residential vs. Commercial Loan
There are fundamental differences between a commercial loan and a residential investment loan. It will depend on lender policy as to whether the property is considered residential or commercial in nature. Here are the key benefits of a residential loan;
- Lower Interest Rates
- Longer Loan Term (reducing monthly commitment)
- Lower Deposit Required (this could be substantially less, up to 10-15% in relation to the property value)
- Lower Fee Structure
An example scenario.
An investor is developing three units on 1 title at a total project cost of $1.2 million, with a loan of $968k, financed by a residential loan. Over the first two years alone, they could save approximately $25k in fees including $6k in up-front fees by having their project classed as residential as opposed to commercial.
How can an expert Broker help?
By speaking to an expert broker, your clients may be able to attain many up-front and long-term cost benefits associated with being able to secure a residential loan in this scenario along with potentially securing lower rates. Launch brokers are also highly experienced in helping your clients plan ahead to manage their building budget for development projects. Your clients are welcome to call us on (08) 9367 4222 or book a free consult by filling out the contact form on this page.