Top tips to fund a multi-unit development site purchase

Buying land for a multi-unit development needs different finance

A construction loan for a multi-unit site works differently to standard home finance. Lenders treat the purchase as a commercial-style project because you're not building a single dwelling to live in. You're funding land acquisition, then drawing down progressively as the build moves through stages. Most lenders require a minimum 20% deposit for development sites, and some won't lend at all unless you're an experienced builder or developer.

Hoppers Crossing has seen consistent interest in townhouse and duplex sites, particularly near the Hogans Road and Old Geelong Road corridor where larger blocks come up for subdivision. The challenge is that councils in Wyndham have specific planning overlays, so your construction loan approval often hinges on whether your development application clears before settlement.

How the progressive drawdown actually works

You don't receive the full loan amount upfront. The lender releases funds in stages as construction hits set milestones, which might include slab down, frame up, lockup, fixing, and practical completion. Each stage requires a progress inspection by a quantity surveyor or valuer appointed by the lender. You pay a Progressive Drawing Fee each time funds are released, typically between $300 and $500 per drawdown.

Consider a buyer who secures a site on Morris Road in Hoppers Crossing to build three townhouses. The land costs $550,000, and the build contract is $750,000. They provide a $275,000 deposit to cover 20% of the total project cost. The lender approves the remaining $1,025,000 as a construction facility. As each townhouse reaches slab stage, the builder submits invoices and the lender releases funds directly to the builder after inspection. During construction, the buyer pays interest only on the amount drawn down, not the full approved facility.

Fixed price contracts reduce lender nervousness

Lenders prefer fixed price building contracts because the risk is contained. A cost plus contract, where the builder charges actual costs plus a margin, makes lenders uncomfortable because the final amount can blow out. If you're going down the owner builder route, expect most mainstream lenders to decline. Some non-bank lenders will consider owner builder finance, but the deposit requirement jumps to 30% or more and interest rates are higher.

The contract also needs to specify a progress payment schedule that aligns with the lender's drawdown stages. If your builder wants payments at different milestones to what the lender uses, you'll need to negotiate one or the other. Most registered builders in the Wyndham area are used to working with lender requirements, but it's worth confirming before you sign.

Council approval timing affects settlement

Wyndham City Council requires a development application for most multi-unit builds, and approval can take 60 to 90 days if there are no objections. Some contracts include a clause requiring you to commence building within a set period from the disclosure date, which puts pressure on your DA timeline. If settlement happens before your plans are approved, you're holding land and paying interest without being able to start construction.

In a scenario like this, a buyer purchases a corner block near Heaths Road zoned for dual occupancy. They settle on the land using a land loan, then apply to convert it to a construction facility once council plans are stamped. This adds an extra step and means two separate loan applications, but it avoids the risk of a construction approval expiring while you wait for council. Some lenders allow a 12-month window between land purchase and construction start, others require building to begin within six months.

Interest during construction adds to your holding cost

You only pay interest on funds drawn down, but that interest still accumulates monthly. If your project takes nine months to build and you're drawing down in five stages, you'll be paying interest on a growing balance the whole time. Most lenders offer interest-only repayment options during construction, which keeps your monthly cost lower until the build is complete and you either sell, refinance, or switch to principal and interest.

Some buyers capitalise the interest, meaning it gets added to the loan balance rather than paid monthly. This keeps cash flow easier during the build but increases the total debt by the time construction finishes. If you're planning to sell the completed units to repay the facility, capitalising works. If you're holding them as investment properties, you'll want to factor that accumulated interest into your serviceability when the loan converts.

Lenders assess your ability to service the full facility

Even though you're only drawing down progressively, the lender assesses your income against the full loan amount. That means if you're borrowing $1,025,000, your serviceability needs to support repayments on that figure from day one, even though you might only have $300,000 drawn in month three. This catches a lot of buyers off guard, especially if they're relying on future rental income from the completed units.

If your income doesn't cover the full facility, some lenders will consider presale contracts as evidence of future repayment. For example, if you've sold one of the three townhouses off the plan before construction starts, the lender may accept that contract as part of your exit strategy and reduce the serviceability requirement. You'll still need enough income or equity to support the remaining debt.

Valuation happens twice

The lender orders a valuation of the land before they approve your purchase, then a second valuation once construction is complete. The first valuation is straightforward, it's just the land. The second one values the completed development, and if it comes in lower than expected, you might not be able to refinance or sell for enough to clear the debt. This is particularly relevant in Hoppers Crossing where unit prices can vary depending on proximity to the train station and how many similar developments have completed nearby.

If you're building spec homes to sell, you need a buffer between your total project cost and the expected sale price. A 15% margin is common, but that margin shrinks quickly if construction delays push your completion into a softer market. If you're planning to hold the units and refinance into an investment loan structure, the lender will assess rental income and revalue the properties as individual dwellings, not as a development.

Choosing the right lender depends on your experience

Not all lenders offer construction finance for multi-unit sites, and the ones that do have different appetites depending on whether you've done this before. If this is your first development, expect more questions about your builder, your project manager, and your contingency planning. If you've completed a development previously, you'll have access to better rates and higher leverage.

Some lenders also cap the number of dwellings they'll fund under a standard construction facility. If you're building four or more units, you might be pushed into commercial finance, which has higher rates and shorter loan terms. A mortgage broker in Hoppers Crossing who works with development clients regularly will know which lenders are currently lending in this space and which ones have tightened up.

Call one of our team or book an appointment at a time that works for you. We'll walk through your development plan, confirm what deposit you'll need, and line up a lender that actually funds multi-unit projects in Wyndham without pushing you into commercial territory unless the scale requires it.

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