Simple hacks to fund multi-unit builds in Terrigal

Multi-unit construction finance works differently to a standard home loan. Lenders assess the development itself, not just you as a borrower, and they release funds in stages as the build progresses.

If you're looking at a duplex, triplex, or small unit block in Terrigal, the first thing to sort out is whether the project stacks up on paper. The bank will want to see council approval, a fixed price building contract, and enough equity or cash to cover your deposit plus the gap between what they'll lend and what the project costs. Most lenders will go to 80% of the land value and construction costs combined, which means you're covering the other 20% plus all the fees and holding costs along the way.

What lenders look at before approving multi-unit construction finance

Lenders assess the feasibility of the development, your borrowing capacity, and the registered builder you're using. They'll want a development application approval from Central Coast Council, a quantity surveyor's report, and a fixed price contract with a licensed builder. If you're planning to sell one or more units on completion, they'll also look at pre-sales or an independent valuation showing end values that support the loan amount.

Your own financials still matter. The bank will assess your income, existing debts, and credit history just like any other loan, but they'll also stress-test whether you can cover the interest-only repayments during construction if rental income or sales don't happen immediately. In our experience, borrowers underestimate how much cash they need to carry while the build is happening, especially if there are delays.

Consider a developer looking to build two townhouses on a subdivided block near Terrigal. The land is worth $400,000, and the construction cost for both dwellings comes in at $600,000. The lender agrees to 80% of the total $1 million project, which is $800,000. The borrower needs $200,000 in equity or cash, plus another $30,000 to $40,000 for council fees, legals, and loan costs. During the eight-month build, they're paying interest only on whatever's been drawn down, but they're also covering rates, insurance, and any holding costs on the land. When both townhouses are finished and valued at $600,000 each, the borrower refinances or sells to exit the construction loan.

How the progressive drawdown and payment schedule actually works

Funds are released in stages based on the progress of the build, not when you need them. The lender appoints a building inspector who signs off at each stage before releasing the next payment, and the builder invoices according to a progress payment schedule in the building contract. You don't get the full loan amount upfront, and lenders only charge interest on the amount drawn down so far.

Typical stages include slab or base, frame, lock-up, fixing, and completion, though the exact breakdown depends on the contract and lender. Each drawdown attracts a progress inspection fee, usually between $300 and $500 per inspection, and these add up over the course of the project. If the inspector flags an issue, the next draw gets held until it's fixed, which can cause cash flow problems if you've already committed to paying sub-contractors.

One thing that catches developers out is the gap between when the builder expects payment and when the bank releases funds. The builder invoices based on work completed, the bank sends an inspector, and then the money flows a few days later. If your builder is pushing for payment before the bank has released the drawdown, you'll need access to your own cash to bridge that gap. Setting up a small buffer in your offset account or line of credit can save a lot of headaches.

Fixed price contracts and cost plus arrangements

Most lenders will only approve construction finance against a fixed price building contract with a registered builder. A cost plus contract, where you pay actual costs plus a margin, is harder to finance because the final cost isn't locked in. If you're planning an owner builder project, your options narrow significantly, and the lenders that do consider it will often cap the loan at 60% to 70% and require detailed project management experience.

A fixed price contract protects both you and the lender. It sets out the total build cost, the progress payment schedule, and the timeframes. If the builder goes over budget, that's their problem unless you've requested variations. If you're using a cost plus arrangement, you'll need a much larger cash buffer, and you'll likely end up with a smaller loan amount relative to the project size.

What council approval and development applications mean for your construction loan application

You'll need development approval before any lender will formally approve your construction finance. In Terrigal, that means lodging a development application with Central Coast Council, which can take several months depending on the complexity of the project and whether neighbours lodge objections. The approval needs to be current and unconditional, and the construction loan will usually require you to commence building within a set period from the date of the approval.

Some lenders will give conditional approval based on a DA that's been lodged but not yet determined, but they won't release any funds until the approval comes through. If the DA gets knocked back or you need to make significant changes, you'll be back to square one. If you're buying land that already has DA approval in place, make sure it's transferable and that the approval hasn't lapsed.

Interest during construction and how much it actually costs

You'll be paying interest only on whatever's been drawn down, which starts low and increases as the build progresses. If the project takes longer than expected, those interest costs add up. Most construction loans are structured as interest-only during the build, then convert to principal and interest once construction is complete, though you can also refinance to a different product at that point.

Let's say you're two months into a six-month build and the lender has released $300,000 so far. You're paying interest only on that $300,000, not the full $800,000 loan amount. If the variable construction loan interest rate sits around 6.5%, that's roughly $1,600 a month at this stage. By month four, when $600,000 has been drawn, you're paying closer to $3,200 a month. If the build drags out to nine months instead of six, you're carrying those interest costs for an extra three months with no income from the property yet.

What happens if you want to refinance or sell before the build is finished

You're generally locked into the construction loan until practical completion. If you try to exit early, the lender may charge break costs, and you'll struggle to find another lender willing to take over a half-finished project. Most buyers won't touch an incomplete development, and selling the land with a partially built structure is a nightmare.

Once the build is finished and you've received an occupation certificate, you can refinance to a standard home loan or investment loan depending on how you're using the property. If you're selling, the construction loan usually allows for a short period after completion to settle the sale before the loan converts or needs to be repaid. Some developers will pre-sell units off the plan to lock in buyers before construction finishes, which helps with cash flow and gives the bank confidence that the exit strategy is solid.

How much deposit and cash buffer you actually need for a multi-unit development in Terrigal

You'll typically need at least 20% of the total project cost in cash or equity, plus another $30,000 to $50,000 to cover all the fees, holding costs, and contingency. That includes council fees, connection fees for water and sewer, legal costs, loan establishment fees, valuation and inspection fees, and insurance during construction. If you're also holding down another mortgage or paying rent while the project is underway, factor that in too.

Terrigal's close enough to the water and the Lakes that land values have held solid, but it's not an area where you'll see huge premiums on completed units compared to established homes unless you're right on the waterfront or next to Tuggerah Lake. The appeal for developers is that land is still relatively affordable compared to suburbs closer to Gosford or Sydney, and there's demand for affordable housing and downsizer options. But that also means your margins are tighter, so running out of cash halfway through because you underestimated costs or timeframes can sink the whole project.

Call one of our team or book an appointment at a time that works for you. We'll walk through the numbers, the lender options, and what you'll need to get the construction finance sorted before you break ground.