Proven Tips to Fund Multi-Unit Developments in WA

If you're planning to build multiple dwellings on a single block, you'll need construction funding that releases money in stages as the build progresses, not upfront in a lump sum.

How Construction Funding Works for Multi-Unit Projects

Lenders release funds progressively based on completed work, not calendar dates or promises. The progressive drawdown structure protects both you and the lender by tying each payment to verified construction milestones. You only pay interest on the amount drawn down at each stage, which means your costs stay lower while the project is incomplete.

Consider a developer building three townhouses in Joondalup. They've secured council approval and signed a fixed price building contract with a registered builder. The lender approves a total loan amount covering land acquisition and construction costs, but releases it across six or seven stages: base slab, frame, lock-up, fixing stage, practical completion, and final completion. At each stage, the builder submits a progress claim, the lender sends an inspector to verify the work, and once confirmed, the next draw is released directly to the builder.

Between each drawdown, the borrower pays interest only on the portion already released. If $400,000 has been drawn on a $1.2 million facility after the frame stage, interest accrues only on that $400,000 until the next claim is approved. This structure keeps holding costs lower during the build and aligns repayments with actual progress.

What Lenders Look for Before Approving Development Finance

You'll need council approval, a detailed cost breakdown, and a fixed price contract with a registered builder before most lenders will assess your application. Lenders want certainty that the project is viable, properly costed, and unlikely to stall halfway through. They'll also assess your equity contribution, which typically needs to sit between 20% and 30% of the total project cost depending on your experience and the development's complexity.

If you're an owner builder, the lending landscape narrows significantly. Most mainstream lenders won't offer construction loans to owner builders on multi-unit projects due to the added risk of project delays or cost blowouts. A handful of specialist lenders will consider it, but expect higher interest rates and stricter progress inspection requirements.

Fixed Price Contracts vs Cost Plus Arrangements

A fixed price building contract locks in the total build cost upfront, which gives lenders confidence and makes loan approval more straightforward. The builder agrees to complete the project for a set amount regardless of material price fluctuations or minor scope adjustments. Most lenders prefer or require fixed price contracts for multi-unit developments because they reduce the risk of the project running over budget and the borrower needing additional funds partway through.

Cost plus contracts, where the builder charges for actual costs plus a margin, introduce uncertainty. Lenders treating these arrangements with caution because the final project cost isn't locked in at approval. If you're pursuing a cost plus contract, expect fewer lender options and potentially higher equity requirements to offset the risk.

Progress Payment Schedules and Draw Timing

Each lender structures their progress payment schedule slightly differently, but most follow a similar pattern: slab down, frame up, lock-up, fixing, practical completion, and final completion. The builder submits a claim at each stage, and the lender arranges a progress inspection before releasing the next instalment. Inspection turnaround times vary, but budget for five to ten business days between claim submission and fund release.

Some lenders charge a progressive drawing fee each time funds are released, typically between $300 and $500 per draw. Others bundle inspection costs into the loan structure or waive them entirely depending on the loan amount and relationship. Clarify these fees upfront because six or seven draws can add several thousand dollars to your total project cost if you're not prepared.

If the build runs ahead of schedule and the builder requests early access to the next stage payment, most lenders will reassess based on actual progress rather than simply releasing funds on request. The inspection report drives the drawdown, not the builder's cash flow needs.

What Happens If the Project Stalls or Runs Over Budget

If construction stops or the builder walks off site, the lender will typically halt further drawdowns until the issue is resolved. You'll continue paying interest on the amount already drawn, but no new funds will be released until a replacement builder is engaged or the original builder returns. This is why lenders insist on registered builders with valid insurance, not just capable tradespeople without formal accreditation.

Cost overruns are a separate issue. If the project exceeds the approved loan amount, you'll need to cover the difference from your own funds or seek a loan variation. Lenders may approve a top-up if you have sufficient equity and the revaluation supports the increased amount, but this isn't automatic. Building a contingency buffer into your initial budget, usually around 10% of the construction cost, reduces the likelihood of needing additional funds late in the project.

When You Can Start Building After Loan Approval

Most construction loan approvals require you to commence building within a set period from the disclosure date, typically six to twelve months. If you don't start within that window, the approval may lapse and you'll need to reapply. This clause exists because construction loan interest rates and lending criteria can shift, and lenders don't want open-ended commitments on projects that may never proceed.

Once the first drawdown occurs, the clock starts on the construction timeline. Most lenders expect the build to complete within twelve to eighteen months depending on the project size. If delays push the build beyond that period, you may need to request an extension and provide updated costings and timelines.

Converting to a Standard Investment Loan After Completion

Once the development reaches practical completion and the final drawdown is released, the loan typically converts from construction funding to a standard investment loan or commercial facility depending on your plans for the units. If you're selling the completed townhouses, the loan remains interest-only until settlement and is repaid from sale proceeds. If you're holding them as rentals, the loan converts to principal and interest repayments or remains interest-only depending on your structure and the lender's policy.

Some lenders offer a construction to permanent loan structure, where the same facility covers both the build phase and the long-term hold without needing to refinance. This approach can save on application fees and valuation costs, but it locks you into that lender's ongoing rates and terms. Weigh the convenience against the potential cost of not reviewing the market once construction is complete.

If you're planning a multi-unit development and want to understand which lenders will consider your project, what equity you'll need, and how the drawdown process works in practice, call one of our team or book an appointment at a time that works for you.

Frequently Asked Questions