With land in more demand than ever, knockdown rebuilds are growing in popularity throughout Australia. A knock down rebuild process allows you to buy an existing home, demolish it and rebuild a new house in its place. It’s also a way to remain where you currently are yet still get a new house.
Sounds like a great idea, but how are you going to pay for all this? There are a few ways to finance a knock down rebuild and that’s exactly what we’re going to discuss in this article.
Table of Contents
Key considerations before deciding on a knockdown rebuild
Talk to the council about whether you’re allowed to demolish your existing home: While most homes will receive council approval for demolition, there are some exceptions. For example, homes that are heritage-listed usually cannot be knocked down.
How will you get the funds needed: Unless you’re doing very well financially, you’re going to need to use borrowed funds to pay for your knock-down rebuild. We’ll go into more detail about your options in the next section.
Costs and expenses: You’ll need to speak to demolition companies and get quotes for your project. You’ll also need to do the same when finding a builder for your home.
Is this the best option for you: A knockdown rebuild is a fantastic option in the right situation, but it isn’t for everyone. Weigh up your other options so you can certain a knockdown rebuild is the best choice for you.
Where will you live during construction: While your home is being knocked down and rebuilt, you’re going to need to find somewhere to stay. Whether this is with family or you rent, you need to factor in these expenses so you’re not caught off guard.
What are the different financing options for a knock down rebuild?
Building and Construction loan
Probably the most common method to finance a knockdown rebuild is to take out a construction loan. These loans, as the name suggests, are specifically designed for financing construction projects. Unlike traditional home loans, construction loans are paid out in stages throughout the build rather than in one big payment. The typical payment plan is:
- Initial Deposit (5% of payment)
- Slab (15% of payment)
- Frame (20% of payment)
- Lock-up (20% of payment)
- Fit out (30% of payment)
- Completion (10% of payment)
Equity Loan
Land has never been more valuable than it is now and if you own some, you can use this to your advantage. In many cases, no matter how nice your house is, it’s not as much as an asset as the land itself. Equity is calculated by considering the value of the land itself and how much you still owe on your mortgage.
Depending on your budget, property value and ability to make repayments, your lender can lend anywhere between 80-95% of the total amount.
Subdividing your land
Depending on your situation, it may be possible to subdivide your property and use the mortgage on your current home to finance a knockdown rebuild. However, this won’t work for everyone and the process requires careful financial planning.
You’ll need to discuss this plan with your lender, and find out whether they’ll entertain the idea and what type of deal they’re willing to offer. Subdividing land can be pricey and require a lot of approvals, so you’ll need to consider whether this is the best path for your situation.
Refinance your home loan
If you own your current home outright, you may be able to finance your entire knock down rebuild process by refinancing your existing home loan.
How much will a knock down rebuild project cost?
There are a lot of variables that come with a knockdown rebuild, so it’s difficult to give an exact estimate without knowing the specifics of your project.
Demolishing a house can cost anywhere between $10,000-$25,000, depending on factors including:
- Size of your house
- Ease of access to your property
- Complexity of the project
- The property itself including the slope, soil condition and vegetation.
- Material your home is built out of.
- Surveys required
The cost of building the house itself will depend on many things including:
- The quality of building materials.
- Where you’re building.
- Size of floorplans
- Any complications or delays
Are there any government grants and incentives available for knock down rebuild projects?
Most grants and incentives for knockdown rebuilds are given to those who have been affected by natural disasters.
The first home buyers grant is usually only given to those who are building from scratch and don’t already own a home. Therefore, it’s difficult to be in a situation where you can knock down a home without owning it.
Our tips for securing finance for a knockdown rebuild project
- Talk to a financial advisor about the best options for you.
- If you’re in a strong financial position, your chances of getting a construction loan are much better. Knowing your budget, what equity you have, and what you can realistically afford to pay back will help you know what to aim for. It’ll also help you avoid getting in over your head in debt.
- Be realistic in your goals and how much you can afford.
Advice for managing a knockdown rebuild project
- One of the key aspects of a successful building project is choosing the right people for your team. This includes your builder, demolition team and any other contractor on your way. On the flip side, poor experiences come from a team that is uncommunicative and doesn’t deliver. At Buildi, we can help assemble a team you can trust.
- Plan well. Delays can be costly and frustrating, but simply having permits and paperwork sorted can avoid many common delays.
0 Comments