Top tips to fund a multi-unit development site

What makes financing a multi-unit site different from standard construction

Purchasing a development site with approval for multiple dwellings requires construction finance structured differently to a standard land and build arrangement. Lenders treat these purchases as development projects rather than owner-occupied construction, which changes the deposit required, how funds are released, and the documentation you'll need before settlement.

The difference centres on risk and complexity. When you're building multiple units on one title with the intention to subdivide and sell, lenders need to see council approval, detailed construction costings, and evidence you can manage the build through to completion. Even if you plan to retain one unit and sell the others, most lenders will assess this as development finance rather than standard construction finance.

Consider someone purchasing a 680 square metre block in Mount Lawley with approval for two attached dwellings. The land costs are at the suburb's current median for development-zoned sites, and construction is budgeted through a registered builder under a fixed price building contract. The buyer intends to live in one unit and sell the other on completion. Despite the owner-occupier element, lenders will typically require a 20% deposit, full council approval documentation, and a quantity surveyor's report before they'll issue loan approval. The loan amount is calculated against both land and construction costs, and funds are released progressively as the builder completes each stage.

How council approval affects your loan application

You need development application approval from the City of Vincent before most lenders will issue formal loan approval. A development application that's lodged but not yet approved won't satisfy lending criteria, even if the real estate agent or town planner says approval is likely.

Lenders want to see that council has signed off on the number of dwellings, setbacks, and subdivision plan. This matters because the loan amount is based on the end value of the completed units, and that value depends on what council has actually approved rather than what you hope to build. If approval comes through after you've exchanged contracts but before settlement, you can usually proceed. If settlement is scheduled before approval is likely, you'll need a longer settlement period or a clause that makes the contract conditional on finance, which in turn depends on council approval.

In Mount Lawley, where character retention overlays apply to parts of the suburb and density requirements vary depending on proximity to the Beaufort Street precinct, approval timelines can stretch longer than in greenfield areas. Build that into your contract negotiations rather than assuming a standard 60-day settlement will work.

The progressive drawdown and how progress payments are released

Construction funding is released in instalments as the builder completes defined stages, not as a lump sum at settlement. The schedule usually includes land settlement, base stage, frame stage, lock-up stage, fixing stage, and practical completion. Each stage requires a progress inspection by the lender's valuer before funds are released to the builder.

You'll pay interest only on the amount drawn down so far, not on the full loan amount. During the land settlement stage, you're paying interest on the land component only. Once the base is poured and inspected, the lender releases the next drawdown and your interest calculation increases to reflect the additional funds now advanced. This continues through each stage until practical completion, at which point the loan typically converts to principal and interest repayments unless you've arranged ongoing interest-only repayment options.

Lenders charge a Progressive Drawing Fee each time they conduct an inspection and release funds. This fee usually sits between $300 and $500 per drawdown depending on the lender, and it's paid from the loan funds at each stage rather than upfront. For a six-stage build, expect around $2,500 in progressive drawdown fees on top of standard establishment costs.

What a cost plus contract means for your borrowing capacity

Most lenders prefer fixed price building contracts when assessing development finance. A cost plus contract, where you pay the builder's costs plus a margin, introduces uncertainty around the final loan amount. Lenders either decline the application outright or apply a significant buffer to the estimated construction cost, which reduces how much they're willing to lend.

If your builder has quoted on a cost plus basis, ask whether they'll convert it to a fixed price contract. Many registered builders will do this for an additional margin of 5% to 10%, which is usually a smaller impost than the reduction in borrowing capacity you'll face with a cost plus arrangement. The fixed price building contract also protects you if material costs increase mid-build, as the builder wears that risk rather than you needing to find additional funds partway through construction.

Deposit requirements and where the funds need to come from

Expect to provide a deposit of at least 20% of the combined land and construction costs. Some lenders will consider 15% if you're retaining one unit as your primary residence and your income comfortably services the full debt, but this isn't common. Lenders also want to see that your deposit is genuine savings or equity from another property, not funds borrowed elsewhere.

If you're using equity from your current home in Mount Lawley or another Perth suburb, the lender will require a valuation of that property to confirm available equity. You'll also need to show that you can service both your existing mortgage and the new development loan during the construction period, when rental income from the new units isn't yet available. This serviceability test often catches buyers who've calculated their deposit accurately but underestimated how lenders assess their income against dual loan commitments.

How subdivision timing affects loan structure and exit strategy

Most buyers purchasing a multi-unit development site plan to subdivide and sell at least one dwelling on completion. The subdivision process through Landgate takes several months after practical completion, and you can't settle a sale on an individual unit until the subdivision is registered and separate titles are issued.

Your construction loan needs to account for this gap. Lenders will typically allow a 12-month interest-only period after practical completion to give you time to complete subdivision and sell. If you're planning to retain all units as investment properties, you'll convert to principal and interest repayments after the interest-only period ends, and rental income from both units will support serviceability.

If your plan involves selling one unit immediately to reduce debt, make sure your loan structure allows partial discharge without penalty. Some lenders tie the development loan to both titles until subdivision is complete, then require you to refinance the retained unit onto a standard mortgage once the sold unit settles. Others allow you to discharge one title and keep the other on the original loan. Clarify this before you commit, as refinancing costs and delays can erode the profit margin on your sale.

What happens if construction costs increase mid-build

Under a fixed price building contract, cost increases are the builder's problem, not yours. The contract price is locked, and the builder is obligated to complete the project for that amount even if materials or labour costs rise. This is one reason lenders strongly prefer fixed price contracts when assessing development finance.

If you're using an owner builder arrangement or a cost plus contract, you wear the risk of cost increases. Lenders will hold back a contingency buffer of around 10% to 15% of the estimated construction cost, and they'll only release that buffer if costs genuinely exceed the original estimate and you can provide invoices to prove it. If costs blow out beyond the buffer, you'll need to find additional funds from savings or another source. The lender won't automatically increase your loan amount mid-build, and applying for a top-up loan during construction is difficult because the property isn't yet income-producing and its value is incomplete.

The difference between owner builder finance and using a registered builder

Owner builder finance is harder to obtain and comes with higher interest rates. Lenders see owner builders as higher risk because there's no fixed price contract, no builder's warranty insurance, and no third party managing the construction timeline. Most mainstream lenders won't offer owner builder finance for multi-unit developments at all.

If you're experienced in construction and want to manage the build yourself, expect to provide a 30% deposit, detailed trade quotes for every stage, and evidence of previous projects you've completed. Even then, your choice of lenders will be limited to a handful of specialists, and the construction loan interest rate will likely sit 1% to 2% higher than standard development finance rates.

For most buyers, using a registered builder under a fixed price building contract opens up far more construction loan options from banks and lenders across Australia, keeps your deposit requirement at 20%, and provides the builder's warranty insurance that protects you if the builder goes insolvent mid-project. The additional cost of the builder's margin is usually offset by the lower interest rate and better loan terms you'll access.

When to involve a broker rather than going direct to a lender

Development finance for multi-unit sites isn't a product most lenders advertise on their websites. Policies vary significantly between lenders on deposit requirements, acceptable contract types, and whether they'll lend on duplex builds in character retention areas like parts of Mount Lawley. Going direct to your existing bank often means you're assessed under their standard policies, which may not be the most suitable for a development purchase.

A mortgage broker in Mount Lawley who works regularly with construction and development clients can match your scenario to lenders who'll assess it favourably, structure the loan to allow partial discharge after subdivision, and manage the drawdown process with the builder and valuer. This matters most when your scenario has any complexity, such as retaining one unit while selling the other, using equity from an existing property, or needing a longer interest-only period post-completion.

If you're ready to move forward with purchasing a development site or you want to confirm what's possible with your deposit and income, call one of our team or book an appointment at a time that works for you.

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