Author: Darin Hindmarsh

Becoming an Owner-Builder If you’re thinking of turning into an owner-builder, you may be wondering about saving money and having additional control over the finished product. Both are great reasons to explore this selection – however, the success of either can rely on your skill and ability. The other crucial issue to think about is whether or not you have got the time to devote to a building project. Bear in mind a customary build usually takes longer and Still, saving money and imposing your standards sounds pretty good.  But as an owner-builder, you become responsible for everything associated with the project. Basically, you also assume all the responsibilities. Unless you’re feeling very confident in your experience and expertise, this could be a big risk. Another key factor in becoming an owner-builder is that several lenders will only finance the construction of homes built by licensed builders. So if you’re planning to do a lot of the work yourself, make sure to ask your lender ask about their requirements ahead of time.  To sum up: If you’re set on building, considering your timeline and budget can help you to decide which method or technique can suit you best. While becoming an owner-builder could mean some financial savings, this is a skilled role and you should only consider taking this on if you have experience in project management. A hot topic for owner-builders is owner builder financing. “How do I go about figuring how much home I can afford to build?” Well, if you plan on financing your project, there is a simple process. You may simply fill in our contact form and one of our Home Loan Experts or Consultants will get back to you and you can explain your goal. Ask them to evaluate your financial position and give you a specific amount …General rule – If you don’t have a background in the construction industry is it not recommend that you build your own home, as there are a lot of extra expenses and process that you will not be aware of.

At Intellichoice, we pride ourselves on doing a lot of research to help our clients to obtain owner builder construction loans. We use RPData and Real Estate .com and well as many other industry tools. The main reason we put so much effort into our research is that we need to be able to present to a bank just how much your property will be worth once the project is completed. In the current economic climate, valuers are under pressure to not overvalue property and it is very easy for them to take a conservative approach. This means that in many cases, instead of taking the time to research the local area and make sure the value is right, they just take an average figure based across a number of local sales. While sometimes this valuation may be fair, it doesn’t take into account the individual qualities of the property. So, part of our job at Intellichoice when we take on a client is to research exactly what is going on. What exactly will the property be like once it is completed? Are there many properties like that in the area? Is the area devalued because of a particular local issue that is not relevant to this property? Does the research indicate that the area is about to become a local hotspot? A lot of the owner builders we take on as clients are experts in their particular area but don’t want to be concerned with the issues associated with dealing with banks. That is exactly where we come in and because we have done it before (a lot) we are able to often get a positive result, even in a difficult market by owner building it themselves.

Not everyone is as passionate about Owner Builder Loans as Intellichoice, a Brisbane based company that specialises in obtaining finance for Owner Builders throughout Australia. According to our CEO, the client projects that give him the most satisfaction are the ones who have already tried to get finance themselves. “I love it when clients come to us with a project that has been knocked back by a bank and we get the chance to submit it our way. So often it is just a matter of presenting it differently to show how much inherent value there is in the project,” he says. After more than 30 years working in Finance, the last five specialising in Owner Builder Loans, there’s not much we don’t know about how to put together a proposal. “One of the things we pride ourselves on is our ability to educate both valuers and banks about how the owner builder process works,” he says. “Because Owner Builder homes aren’t as common as those built under a standard building contract, banks and valuers often dismiss them without even considering all the facts,” he says. Do a Google search for “Finance for Owner Builder Projects” and you’ll quickly discover that this is a service that many banks and financial institutions don’t like to handle. To make the process even more difficult, many of the financial institutions that do lend to Owner Builders will only lend on a very low Loan to Value Ratio (LVR) – usually around only 50 or 60%. That means that if you are looking to finance a property with a completed value of $500,000, you will only be able to get a loan for around $250,000. The good news is that Owner Builder Loans with an LVR of 75% are possible as long as you understand the finance industry and that is where the loan specialists at Intellichoice come in. Jo believes that a major part of the job is to mitigate the perceived risk to the lender. “Sure, there can be certain issues around Owner Builder projects but on many occasions, they can also present substantial value,” he says. One of the issues is the way properties are often valued. A common technique is to add the value of the land or existing property to the cost of construction. This valuation process, however, can work against the Owner Builder. Imagine two properties standing side by side with identical plans and identical land values. House 1 is being constructed under a Building Contract. The standard valuation process adds the value of the land or existing property (in this case, $300,000) with the value of the signed Builders Contract ($250,000). Assuming values in the area and various other key criteria stack up, the valuer will add the 2 figures together ($550,000) and that becomes the amount the bank will lend against. House 2 in our example is being Owner Built In this case, the valuer will take the value of the land (again $300,000) but then only look at the proposed cost of construction (which because of the work and expertise the owner is putting in may be much lower, say $150,000). Total value cost for this property may well be valued at $450,000. The same house, the same land, but as far as the bank is concerned, one is worth $100,000 less than the other. Intellichoice sees it as our job to educate valuers and financial institutions that there are many other factors to take into account. Our team research information like earlier building quotes, costs to construct, as well as similar values in the area among other things to illustrate the real value of a property and to prove that the value of the property more than compensates for the risk.

The Tale of an Unprepared Owner Builder Like many couples, Mr & Mrs. Ascott wanted to build their dream home. They weren’t extremely wealthy but they had a bit of cash they could redraw from their loan. They had bought their home 10 years ago and it had appreciated in value significantly. Given the economic climate, they didn’t think it would be a problem for their Bank to lend them more and they were also confident that the property would increase in value as they improved it. Unfortunately, they made these assumptions without speaking to their lenders and ensuring all paperwork and loans were in place. They had their plans drawn up by an architect, got their permits and had the plans approved and were ready to go. Mr Ascott was in the building industry so he knew what he was doing and didn’t bother to go and formally cost his job. He felt he had a fair idea and could keep a handle on it all as they went along. The land was excavated and the slab was poured and all this was paid from the funds in their redraw account. Mr & Mrs. Ascott could see that their funds were not going to stretch too much further so they went to their Bank and asked for an increase to build their house. “Sure”, their banker said, “we can help, do you have a copy of your fixed price contract?”  “What! You’re owner building! Sorry, we can’t help. Mr & Mrs. Ascott were a little concerned but were reassured by a number of other people they knew who were owner building. They spoke to a broker who could arrange owner builder finance and they submitted their application. Mr & Mrs. Ascott continued to build using up their available funds, they were in a hurry to get into their dream home.  After much deliberation, the lender said: “sorry, we’d love to help, but based on the information you provided we cannot approve your loan.”  Mr & Mrs. Ascott were both self-employed and had difficulty obtaining satisfactory financial information. At this stage the clients had ordered the framing timber. The Ascott’s were getting worried, what would happen if they couldn’t obtain the finance to complete the house.  They couldn’t sell the house. Their broker had heard of another lender who might be able to help, they did “low doc” lending and would also consider owner builders. They sent in their application and the lender approved their loan “in principle” subject to a satisfactory valuation.  Great the clients thought, the loan’s approved we can continue building.  The money should be available soon.  The frame was erected and the trusses ordered The lender had advised the clients “don’t start building until the loan has been formally approved, we still need your plans and costings and the valuation has to be done”.  “Well, we have already started building and need the money now” the clients advised. Surely it wouldn’t take long to get a valuation and have the loan approved we’ll keep building, we can’t stop now or we won’t be able to get the trades back, the clients thought. Before the lender could order a valuation they needed the clients’ full costings, they gave the client the format in which they wanted this information presented.  The clients hadn’t actually costed out their job so now they had to get quotes from plumbers, electricians, etc for all the work left to do, this took a couple of weeks and the trades were all very busy and took time to get back to them. The clients sent their completed costings to the lender who took one look and said “this is going to cost a lot more than you originally told us, we won’t be able to lend you enough” So the clients had to go back and reduce their costs, getting cheaper quotes and mum and dad also chipped in with some money to help. By this stage things were getting tense in the Ascott household, their finances were rapidly dwindling and they were arguing a lot.  They were also putting the pressure on their broker and the lender who was feeling the stress. Finally, the valuation was done and the lender approved the loan, not after a time frame of about ten days, the valuer needs time to visit the property, do his research and find comparative sales.  The lender needs time to process the application and do their due diligence. All was looking good now and the Ascot’s had their trusses erected.  “The money won’t be long now thank goodness, we’ve run out and the tradies are screaming to be paid”, said the clients and ordered the bricks and the roofing. New documents were sent, signed by the clients and received back by the lender, all was set for settlement. Finally, the day came when Mr & Mrs. Keen’s loan settled, “where’s our money” they said to the lender. “This loan is a construction loan, we already explained that it is progressively paid and the valuer has come out regularly to check your progress, send in the claim and we will get the valuer to go back out”. The Keen’s progress claim was paid but not until the valuer had gone back out and confirmed the work and the lender processed the claim, this took a couple of days. The Ascott’s eventually finished their dream home but by the end of it they were so stressed and unhappy that they separated and sold the house was sold. The moral of this story is to always do your homework and speak to your bank first. Don’t assume because you have been a good client for 20 years that your bank can help.  Many banks don’t like to lend to owner builders and if they do it’s usually around 50-60% of the land plus costs which is often not enough. Avoid all the stress and get your finance organized before you start.  Speak to Intellichoice first.

Owner Builder Renovations George and Mary Ansett were looking to do a major renovation of their existing Colonial workers cottage. They needed more space and so developed plans to raise the house and build in underneath. They started off the project drawing down on the equity they had built up in their loan over the years Things became difficult however when the project ran over budget. By this time, they had already spent $80,000 on the renovation The project was however only partially completed and so they had to source additional Owner Builder finance They tried all the major banks but very quickly discovered that very view banks or financial intuitions lend money for Owner Builder finance and even fewer of them lend money on projects on which the building work has already been started So then, they started searching the internet for brokers or anyone who could help them source finance for their owner builder project Luckily they discovered Intellichoice. They spoke to the staff and explained the situation they were in Because Intellichoice specialise in Owner Builder Finance they knew the financial institution who had products that could help solve the problem. They also understood how to present applications and supporting documentation in such a way that financial institutions could fit the loan within its criteria As a result, after several very stressful weeks, George and Mary were able to access the funds they needed to finish off the renovation They used the funds to complete the renovation which changed the house from a small 2 bedroom workers cottage to a much larger 4 bedroom house with an ensuite and 2 bathrooms upstairs The original value of the property was around $500,000 but by the time they were finished the property was valued at $780,000. In total (including the delays) the renovation cost $120,000 By managing the process of the construction themselves, they managed to add $280,000 of value to their home by spending $120,000 Several months later, they moved back into their delightfully renovated home which, despite the delays cost much less than it would have had they hired a builder and done the renovation in that way One of the key pieces of information Banks and Financial Institutions use to assess Small Business Loans is the End Market Value which, as the name suggests is the value of the property once the renovation or build is completed One way to assess that is to add the value of the land to the “hard” cost of the construction – in other words, the amount of money it cost you, the owner In the case of a standard building contract, the sums are easy. They add the value of the property to the cost of the building contract But if by Owner Building you can reduce the hard cost of the construction (which, let’s face it is often a major point of the exercise), you can run the risk of the End Market Value being reduced as well In many cases, Banks won’t accept the fact that you are building your house for $400,000 but if you were to go through a builder, the same house would cost $500,000 That’s where the role of the broker becomes extremely important. It becomes his or her job to present the information in such a way that banks can easily and quickly see the value A good broker will know the questions that banks will ask and answer them with market-based data using information such as local property values, price per square meter and similar building quotes Although George and Mary Ansett ultimately managed to access the funds required to complete the project, it would have been far easier and less stressful if they had developed and stuck to a budget so they didn’t have to access funds at the last minute and in a panic It is one of the first questions we ask potential clients – have you developed a budget for the entire project and how much of that budget do you need to borrow from a bank or financial institution? By answering that question realistically at the start, you can save yourself a  lot of time and money throughout the project.

Have you ever dreamt of building your own house or renovating the existing one? Building a new home can be like a dream come true for many people but it is very costly and you may not be able to cover all the expenses without giving up on most of your savings.   No matter at what stage of construction you are, you can get hold of owner builder loan to help cover your expenses easily. For obtaining owner builder finance in Australia, you have to meet certain requirements. These requirements may vary from bank to bank and may get strict if you have some issues in your credit rating and score. The general terms for owner builder loans include: You need to provide collateral against the loan you are applying for. This collateral can be in the form of some property or a strong bank statement. Some banks require you to show a stable income or an employment certificate to ensure that you will be generating enough income to repay the loan amount. The terms and conditions of the loan need to be discussed beforehand with your agent so that you do not have to return anything in excess of what you have gotten as a long. You may also be required to bring in a guarantee of two or more people to show the bank that you can be trusted with the amount that you are asking for a loan. At Intellichoice we have invested heavily in understanding the finance space for owner builders and our experience is much larger than words on a page. We see our role as being more than sourcing an owner builder loan for you Intellichoice, we know where to find the cheapest and most flexible owner builder loans. We can help you with the steps necessary to obtain this type of loan. For more details on owner builder finance or how the home building system can benefit you in your next building project, speak to one of our mortgage brokers at 1300 55 10 45.

The affordable option The great Australian dream of owning a home now extends to those who want to build or renovate the home of their dreams. And it is affordable. Industry figures show that for renovating and extensions alone, the daily spend around the country exceeds $12 million. That means we are spending about $500,000 per hour, $8,300 per minute or $149 per second. Hard to believe isn’t it? While these figures are great for the national economy, homeowners should be looking for ways to minimize the cost of building or renovating their new home. You can do this by becoming an owner builder. Regulations pertaining to owner builders vary in a state, so it is important that if you go down this path, you familiarise yourself with local regulations. Owner builders may supervise as much of the construction work as is possible, but you do have to carry out all statutory requirements for which a registered builder is responsible. The owner builder is responsible for organizing and controlling all works carried out on the site including occupational health and safety, taxation and arranging mandatory inspections. While it seems that there is a great deal to consider, statistics show more and more property owners are looking to control their own projects. As an owner builder, you will have the opportunity to save money, build your financial nest egg and achieve a finish that suits your lifestyle. Some of the advantages of owner building include: Cost saving The amount of money saved will depend on the level of expertise shown by the owner builder. The level of savings will depend on your negotiating skills for materials and contracted services and the functions of an owner builder can perform themselves. This means fewer margins to consider Value increase Apart from financial savings, owner builders can increase the value of the project by extending the home for the same outlay on fittings and finishing. Wealth creation As an owner builder, every dollar not spent paying a tradesman means more in your pocket. Wealth is created as the value of the property escalates compared to the actual construction costs. Many homeowners have completed their projects successfully, surprising even the greatest skeptics. It is possible to build, save money, create wealth and live in your dream home. Project control As the decision-maker, you can make changes at will and without fear of having to pay a hefty premium as a penalty. This flexibility will allow the decision-making process to be enjoyable and productive. For more information about becoming an owner builder and how the mortgage brokers at Intellichoice can help, including the use of the owner builder system or owner builder finance, call 1300 55 10 45 today.