Building an investment property: how the loan differs

The on-completion valuation includes the valuer's estimate of market rent for the finished property. The lender shades it and includes it in serviceability, which is often the difference between an investor qualifying for the construction loan or not. Because the rent does not start until completion, lenders also check the borrower can carry the interest only repayments and any rent they pay elsewhere during the build without it.

Interest on a loan for a property being built to rent is generally deductible from the time the borrower commits to building a rental property, even before it earns income, provided the intention is genuine and the property is rented or available to rent on completion. Holding costs during the build may instead form part of the cost base in some circumstances. The stamp duty on the land is a capital cost. Confirm the treatment with your accountant, because it is fact dependent.

A duplex on one title, or a home with a granny flat, is financed as a residential construction loan with both rents counted where the second dwelling is council approved. Once the duplex is subdivided into two titles the loan is usually split. Three or more dwellings, or a subdivision with multiple lots, moves the project into development finance with lower loan to cost ratios, presale questions and a quantity surveyor.

Interest only through the build and after is commonly requested and available. Structure matters: many investors build in a trust or with a separate investment loan split so the deductible debt is clean. And the exit at completion is either hold and rent, refinancing to an investment loan on the finished value, or sell, in which case the lender will want to know that from the start because a build-to-sell can be treated as a development.