Top Strategies to Finance Multi-Unit Developments

Construction funding for multi-unit projects works differently from a standard home loan.

You draw down the loan amount in stages as the build progresses, and you only pay interest on what has been drawn so far. That structure keeps your holding costs lower during construction, but it also means lenders assess the project more carefully upfront. They want to see council approval, a registered builder with a fixed price building contract, and enough buffer in your loan amount to cover progress payments and the lender's own inspection fees.

Park Orchards sits within the City of Manningham, where Green Wedge zoning covers much of the suburb. If you are looking at a multi-unit development here, the first question is whether the land sits within the Green Wedge or within one of the smaller residential pockets near the Park Orchards Primary School or Longridge Drive. Green Wedge zoning limits subdivision and dwelling density, so any multi-unit project typically requires a planning permit through council and may face stricter conditions on building height, setbacks, and vegetation retention. That planning process can add months to your timeline, and lenders will not release the first drawdown until you hold an approved development application and a building permit.

How Progressive Drawdown Works on Multi-Unit Projects

The lender releases funds in instalments as the build reaches set stages. A typical progress payment schedule includes a deposit stage, a base stage, a frame stage, a lock-up stage, a fix stage, and a final completion stage. Each drawdown is triggered by a progress inspection carried out by the lender's valuer, who confirms that the work matches the stage claimed by your builder.

Consider a scenario where you are building three townhouses on a subdivided block. The land is already titled, and you have a fixed price contract for the construction of all three dwellings. The contract price is $1.2 million, and your lender has approved a loan amount of $1.35 million to cover the build and associated costs. At the base stage, the builder invoices $240,000. You request a drawdown, the lender arranges an inspection, and once the valuer confirms the base is complete, the lender releases $240,000 directly to the builder. At that point, you start paying interest on $240,000. By lock-up stage, you might have drawn $840,000, and your monthly interest repayment reflects that cumulative amount. The interest is calculated daily on the drawn balance, so the repayment increases with each stage.

Most lenders charge a Progressive Drawing Fee each time you request a drawdown. That fee covers the cost of the valuer's inspection and typically ranges from $200 to $400 per drawdown. With six stages, you might pay $1,800 to $2,400 in total drawing fees across the build. Some lenders cap the number of drawdowns or charge higher fees for additional inspections, so it is worth confirming the fee structure before you settle on a lender.

During construction, you are usually on interest-only repayments. You do not pay down the principal until the build is complete and the loan converts to a standard principal and interest mortgage or, if you are holding the units as investments, remains interest-only for an agreed period. That conversion is sometimes automatic and sometimes requires a new application, depending on the lender. If you are planning to sell one or more of the completed units to reduce the debt, you need to confirm upfront that the lender will allow partial discharges without penalty.

What Lenders Look for in a Multi-Unit Construction Application

Lenders assess multi-unit projects as higher risk than single dwelling builds. They want to see a registered builder, a fixed price building contract, and a clear exit strategy. If you are building to sell, they will ask for a market appraisal showing the expected sale price of each unit. If you are building to hold, they will assess the rental income and require that the completed units meet standard servicing criteria at the end of construction.

The land must have council approval before the lender will issue a formal loan offer. That means an approved development application and an approved building permit. Some lenders will give you a conditional approval earlier in the process, which allows you to lock in an interest rate or move forward with the DA, but they will not release any funds until both approvals are finalised. In Park Orchards, the DA process for a multi-unit project can take six to twelve months if the site involves vegetation protection overlays, bushfire management overlays, or objections from neighbours. The planning department at Manningham typically requires detailed landscape plans, stormwater management plans, and a traffic assessment for any project adding more than two dwellings to a site.

You also need to show genuine savings or equity. Most lenders require at least 10 percent of the total project cost to come from your own resources, and some require 20 percent if you are an owner builder or if the project involves more than four units. That equity can come from cash, from equity in another property, or from the unencumbered value of the land itself if you already own it outright.

Fixed Price Contracts and Cost Plus Structures

A fixed price building contract gives both you and the lender certainty. The builder agrees to complete the project for a set amount, and any cost overruns are their responsibility. Most lenders will only approve construction funding if you have a fixed price contract with a registered builder who holds adequate insurance.

A cost plus contract is sometimes used for custom or high-end builds where the final cost is harder to estimate upfront. Under a cost plus structure, you pay the builder's actual costs plus an agreed margin or management fee. Lenders are cautious with cost plus contracts because there is no cap on the final amount, and if costs blow out, you may not have enough loan capacity to finish the build. If you are using a cost plus contract, expect the lender to require a larger contingency buffer and to scrutinise every line of the builder's estimate.

Owner builder finance is harder again. If you are acting as your own builder, most mainstream lenders will not support the project. You will need a specialist lender, and you will typically pay a higher interest rate and provide a larger deposit. The lender will also require detailed quotes from every subcontractor, including plumbers, electricians, and concreters, and they may hold back a portion of each drawdown until the next stage is verified.

Managing Timing and Contingency

Most lenders require you to commence building within a set period from the loan settlement date, usually six to twelve months. If you settle the land purchase or refinance an existing property to access construction funding, the clock starts immediately. If your DA is still in progress or your builder is not ready to start, you may end up paying interest on the land loan before construction begins, which adds to your holding costs.

You also need a contingency buffer. Even with a fixed price contract, there are costs outside the contract that you need to cover, including council infrastructure charges, utility connection fees, landscaping, driveways, fencing, and sometimes additional works required by council as a condition of the building permit. A contingency of 5 to 10 percent of the contract price is standard. If your loan amount does not include that buffer, you will need to fund those costs out of your own pocket or risk delays while you scramble for additional finance.

In our experience with multi-unit projects, the most common issue is underestimating the time between DA approval and the first drawdown. You might receive DA approval, but then the builder needs to finalise the working drawings, submit for the building permit, wait for the permit to be issued, and arrange insurance and site access. That process can take another two to three months, and during that time you are holding the land and paying interest if the land loan has already settled.

Using Construction Finance for Renovation or Subdivision

Some clients start with an existing house on a larger block and subdivide to create multiple titles before building additional dwellings. That approach works well in areas where land values are high and where council allows subdivision, but it adds complexity to the funding structure. You need to complete the subdivision first, which means lodging a plan of subdivision, gaining council approval, and registering the new titles. The lender will typically require the subdivision to be registered before they release construction funds, because they need a separate title to secure the loan against.

If you are renovating an existing dwelling as part of a multi-unit project, for example converting a large house into two units or adding a second dwelling at the rear, the lender will treat it as construction finance if the work is structural and requires a building permit. The same progressive drawdown structure applies, and you will need a registered builder and a fixed price contract. Minor renovations that do not require a building permit, such as cosmetic updates or landscaping, are usually funded through a standard home loan or personal loan rather than construction finance.

Why Council Approval Timing Matters in Park Orchards

Park Orchards is a low-density suburb with a strong focus on environmental protection. The Green Wedge zoning and vegetation protection overlays mean that any development involving tree removal or significant site disturbance will face additional scrutiny. The City of Manningham requires an arborist report for most planning applications, and if there are significant trees on the site, you may be required to retain them or offset any removal with new plantings. That can limit where you can position the buildings, where you can run driveways, and how much site coverage you can achieve.

If your site is affected by the Bushfire Management Overlay, which applies to parts of Park Orchards near the bushland edges, you will also need a bushfire management statement and may need to meet specific construction standards such as ember protection and defendable space requirements. Those conditions add cost to the build and can delay the building permit if the CFA requires changes to the design.

Because the DA process in Park Orchards can be lengthy, most developers and owner-occupiers apply for planning approval before they lock in construction funding. Once the DA is approved, you have a much clearer picture of what you can build, what conditions apply, and what the timeline looks like. At that point, you can approach lenders with a complete application, including approved plans, a builder's quote, and a realistic construction schedule.

If you are looking at construction loans for a multi-unit project, or if you need help structuring finance for a subdivision or land and build scenario, call one of our team or book an appointment at a time that works for you. We work with lenders who understand development finance and who can support projects across Park Orchards, Wantirna, Croydon, and the broader eastern suburbs.

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