Financing a rooming house development can require a different approach from a standard residential construction project.

The property type, construction costs, existing land position and lender requirements all need to be considered when determining how the funding should be structured.

This was the situation for a recent THG client who already owned the land and had entered into a contract to develop a rooming house. The client needed funding to refinance the existing land and cover the full construction costs.

The Starting Position
The client held approximately 35% equity in the land and was seeking finance within 60% to 70% range of the total project value.

The funding needed to cover two purposes.

• Refinancing of the existing land
• Full construction funding for the proposed rooming house

This meant the finance needed to accommodate both the existing property position and the construction component within one facility.

Rooming houses are specific property type in Victoria. A rooming house is generally a building where four or more people can live in rented rooms, with individual residents usually having seperate agreements with the operator. Rooming houses are also subject to specific regulatory and safety requirements.

Finding the Right Lending Structure
The main consideration was not simply the amount of finance required.

The lender are also needed to assess the proposed use of the property, the construction project, the available equity and the overall value of the development.

THG worked with a specialist lender to structure a facility that addressed these requirements.

The final structure provided:

• $1.028 million – Loan amount
• 65% – Loan to value ratio based on Gross Realisable Value
• 35% – Existing land equity
• 100% – Construction costs funded

The facility also included the refinance of the existing land.

This gave the client a single funding structure for the land refinance and construction component

From Application to Settlement
The application progressed from lodgement to conditional approval in approximately 2.5 weeks.

Settlement followed approximately 3.5 weeks after conditional approval.

The transaction therefore progressed from application through to settlement within approximately six weeks.

Considering a Rooming House Development?
Every project has different funding requirement.

If you are considering a rooming house development and need finance for construction, land refinance or both, speaking with a mortgage adviser early can help you understand what information lenders are likely to require and what funding structures may be available.

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