One of the conversations I have most often doesn't begin with someone looking for a development site.
It begins with someone who already owns one.
Typically, they've purchased a residential investment property several years earlier with a long-term vision of one day knocking down the existing dwelling and constructing a Class 1B rooming house.
At the time, the purchase made perfect sense.
The property was financed using a standard residential investment loan, often at a high Loan to Value Ratio (LVR). The strategy was simple, purchase the property, hold it while it appreciated in value, then develop it when the timing felt right.
On the surface, it seems like a sensible plan.
Unfortunately, this is often where the first major hurdle appears.
The Lending Landscape Changes
One of the biggest misconceptions I see is the assumption that because the property was purchased using residential finance, the redevelopment will simply be the next stage of the journey.
In reality, the moment a residential investment property becomes a proposed Class 1B rooming house development, the lending landscape changes.
Although the land may still be zoned residential, lenders often assess the completed project very differently.
The pool of lenders becomes significantly smaller.
Commercial valuation methodologies may apply.
Construction risk increases.
Funding structures become more specialised.
Perhaps most importantly, investors are often surprised to discover that the maximum Loan to Value Ratio (LVR) available for a Class 1B rooming house development is almost always lower than the LVR they originally obtained when purchasing the property as a standard residential investment.
The Hidden Consequence
This is where many investors are caught by surprise.
When the property was originally purchased, they may have borrowed up to 90% under a residential lending policy.
Years later, when they're ready to redevelop the site into a Class 1B rooming house, the lower LVR requirements associated with this specialised asset class can significantly increase the amount of equity or cash contribution required to proceed.
The result is that a project they have spent years planning suddenly becomes difficult, or in some cases impossible, to fund without injecting additional capital.
Not because the site is unsuitable.
Not because the development is unviable.
But because the finance strategy wasn't considered at the beginning of the journey.
One of the most expensive decisions a rooming house investor can make isn't choosing the wrong site. It's choosing the right site with the wrong finance strategy.
Looking Beyond Today's Purchase
This is why my conversations with clients often look very different.
When someone tells me they hope to build a rooming house in the future, I'm not just looking at whether we can secure today's loan.
I'm already thinking several years ahead.
Will today's lending structure support a future redevelopment?
How much equity is likely to be required when the project moves into construction?
Will the proposed development fit within the lending policies likely to apply at that time?
How will the completed project be valued?
Will today's decisions make tomorrow's project easier, or significantly more difficult?
These are very different questions to simply asking,
"Can we get this loan approved?"
They are the questions that help shape a long-term strategy.
Strategy Before Property
One of the greatest advantages of working with a specialist isn't simply having access to lenders.
It's having someone who understands the sequence of decisions.
Sometimes the smartest financial advice isn't about finding a lender willing to approve the loan.
It's about ensuring today's purchase supports tomorrow's objectives.
Property should never dictate your finance strategy.
Your finance strategy should help determine whether the property is the right fit in the first place.
Some of the biggest funding challenges I see aren't created during construction. They're created years earlier, on the day the development site is purchased.
A Different Way of Thinking
I've always believed that good finance advice goes beyond obtaining loan approval.
It's about understanding where you're trying to get to and making decisions today that support those long-term objectives.
That's why I encourage clients to speak with me before they purchase a development site, not after.
A conversation before signing a contract can uncover opportunities, identify potential funding challenges and help ensure today's purchase supports tomorrow's vision.
Sometimes that conversation confirms you're on the right path.
Sometimes it changes the path entirely.
Both outcomes are valuable.
Because successful property development isn't simply about finding the right site.
It's about building the right strategy.
At Evermore Finance Group, one principle underpins every recommendation we make:
Finance First. Property Second.
Because successful rooming house developments begin with strategy, not just a site.
This article provides general information only and should not be relied upon as personal financial or credit advice. Every borrower, development and lending scenario is different. Professional advice should always be obtained before making financial or property decisions.
About the Author
Alicja Banfield is the Founder and Managing Director of Evermore Finance Group and specialises in complex lending scenarios, including Class 1B rooming house finance, commercial lending and strategic lending solutions.
Through The Rooming House Journal, Alicja shares practical insights gained from financing specialised developments and helping investors navigate the complexities of this unique asset class.
Finance First. Property Second.