The new "Kiwi Dream"
It used to be a quarter ache but that has expanded to being the small lifestyle block, in the country with a brand new build and shedding for all your toys or somewhere to run your business out of. The process of getting this done can be complex and we all want to make the process of selling, buying and building to be as smooth as possible.
The common scenario we see here is someone who owns their current home and has good equity built up in it. They find a lifestyle section and want to build a home on it but don't want to rent for the 12 - 18 months required to get everything sorted and the build complete. So the solution they come up with is to build a shed on the property that they eventually want anyway, live in it for the 12 - 18 months (or longer) before building the main "forever home" and then keep the sheds to run a business out of or for storage and the shed dwelling as a potential income source with tenants.
Now this is all good in theory and can absolutely work, but there are a few things to take into account to make sure, from a lending perspective, everything is how it needs to be.
1. The bank needs to have a dwelling
Building a shed is an absolutely fine type of structure on the property to live in as long as it meets the councils requirements of what a dwelling is. You may be happy to live in an empty shed with no insulation and cooking over a gas camping cooker, but if you want the bank to lend funds for you to build it, it needs to be a dwelling and it needs to be fully consented as a dwelling but your local council.
2. Build it so it fits the minor dwelling rules
Every council has a slightly different definition of what a "minor dwelling" is. It pays to check before you start the shed/dwelling build and also any other covenants the section may have on it. On most title types, you can't have more than one dwelling unless one fits into the minor dwelling category.
The main reason to make sure that what you are building in the shed fits the minor dwelling rules is so that when you do build your main home on the property, you are able to then keep the minor dwelling in place and not need "decommission" the dwelling when your new house is built. We want to keep the minor dwelling to give you options.
3. Need a fixed price contract for the whole project
There are a lot of options out there for people to build a shed and often the cost is really affordable which is great. However, for the bank to be comfortable with it being a dwelling, they will need the shed to be up to the standard of a house (even a small one) and so they will want one builder/company to be in charge of the entire project and the costings associated with it. A fixed price contract includes everything from start to finish of the project from consents and excavations through to driveways and landscaping.
This means you wont be able to get a quote from a shed company for the shed, then a quote from the plumber, electrician and builder, then from the carpet company etc and get the bank to accept them all individually. That would make you an owner managed build and requires a lot more equity and a history of project management (possible but much more difficult).
You'll want to find a builder/company that will be happy to manage the whole process for you, invoice you at specific points in the project and have either a Master Builders or similar guarantee as the banks will want to know that there is someone reputable overseeing the project and that it will be completed on time and on budget (no one wants a Grand Design's type project!).
Get yourself pre approved
If buying a lifestyle section and living in a shed while you look to build your dream house sounds like the type of Kiwi Dream you're after, touch base with the My Mortgage team and we'd be happy to walk you through things and answer any questions you might have.