How to Fund Multi-Unit Development Construction

Construction finance for multi-unit development works differently to standard home lending.

You're not borrowing a lump sum upfront. Lenders release funds progressively as building stages complete, which means you only pay interest on what's been drawn. That matters when you're funding multiple dwellings rather than a single residence, because the loan amount and construction timeline both scale up. If you're working in aged care pharmacy and considering a duplex, triplex, or small townhouse project as an investment strategy, understanding how construction loan structures apply to multi-unit builds will help you plan your deposit, cashflow, and build timeline with clarity.

Why Multi-Unit Construction Finance Differs from Single Dwelling Loans

Lenders treat multi-unit construction as higher risk than a single home build. The loan amount is larger, the build takes longer, and there are more variables that can affect completion. Most lenders will require a minimum 20% deposit for a duplex or triplex, and some will ask for 30% if the project includes three or more dwellings. They'll also assess your capacity to service the full loan amount during construction, even though you're only making interest payments on drawn funds. As an aged care pharmacist with a stable income, you'll generally meet serviceability requirements, but the larger loan size means your borrowing capacity calculation becomes more sensitive to existing debts and living expenses. Lenders will also scrutinise the development application, building contract, and council approval more closely than they would for a single dwelling.

How the Progressive Drawdown Works for Multiple Dwellings

Funds are released in stages based on construction milestones. Typical stages include base or slab completion, frame completion, lockup, fixing, and practical completion. For a duplex, the lender may release funds for both dwellings at each stage, provided both have reached that milestone. If one dwelling is ahead of the other, the drawdown schedule can become uneven, which sometimes creates cashflow gaps for your builder. You'll need to confirm with your lender whether they require both units to reach the same stage before releasing funds, or whether they'll release proportionally. Most lenders charge a Progressive Drawing Fee for each inspection and drawdown, typically around $300 to $500 per draw. Over a multi-unit build with six to eight stages, that adds up to several thousand dollars, so factor it into your project budget from the outset.

Consider an aged care pharmacist looking to build a duplex on a subdivided block. The land cost is within the suburb's current range, and the fixed price building contract totals the remaining amount. The lender approves construction finance with a progressive drawdown structure. At each stage, the builder submits a progress claim, the lender arranges a progress inspection, and funds are released directly to the builder. Because the loan only charges interest on the amount drawn down, the borrower pays interest on a gradually increasing balance rather than the full loan from day one. At lockup stage, roughly 60% of the build cost has been drawn, so interest payments remain manageable during construction. Once both dwellings reach practical completion, the loan converts to a standard investment loan with principal and interest repayments.

What Lenders Look for in a Multi-Unit Development Application

Lenders assess four main elements: the land, the building contract, your financial position, and the end value. The land must have council approval for the number of dwellings you intend to build. If you're purchasing land with an existing dwelling that you plan to demolish, the lender will want confirmation that council plans have been submitted and approved. The building contract must be with a registered builder and should be a fixed price contract rather than a cost plus arrangement. Fixed price contracts give the lender certainty around the final loan amount and reduce the risk of cost blowouts. Your financial position needs to demonstrate that you can service the full loan amount and cover the deposit plus any settlement costs. The end value is assessed by the lender's valuer, who will provide a valuation of the completed development. If the valuation comes in lower than your projected costs, you may need to increase your deposit or reduce the scope of the build.

Interest-Only Repayments During Construction and Beyond

Most construction loans default to interest-only repayments during the build. Once the construction phase ends, you can choose to continue with interest-only repayments or switch to principal and interest. For aged care pharmacists holding the development as an investment, interest-only repayment options can improve cashflow in the early years, especially if you're waiting for tenant occupancy or planning to sell one unit to reduce debt. The interest-only period typically runs for one to five years after construction completes, depending on the lender. If you're planning to retain both dwellings as rental properties, switching to principal and interest repayments sooner will reduce your loan balance faster and build equity. If you're planning to sell one dwelling and keep the other, staying on interest-only until the sale settles can keep your repayments lower while you manage two properties.

How to Structure Your Deposit and Build Timeline

Your deposit needs to cover the land purchase and the gap between the total project cost and the construction loan amount. If the lender requires a 20% deposit, that's calculated on the combined land and build cost. For a project costing a specific amount in total, you'll need to provide that deposit upfront, along with settlement costs for the land. Some lenders will allow you to purchase the land first and then apply for construction finance separately, but this can complicate the approval process if your borrowing capacity is stretched. A cleaner approach is to apply for a land and construction package, where the lender assesses both the land purchase and the build in a single application. Once the land settles, you'll need to commence building within a set period from the Disclosure Date, usually six to twelve months. If the build doesn't start within that window, the lender may require a revaluation or reassessment of your financial position.

Fixed Price Building Contracts and Progress Payment Schedules

A fixed price building contract locks in the total build cost and protects you from price increases during construction. The contract should include a detailed progress payment schedule that aligns with the lender's drawdown stages. Most builders will request a deposit before starting work, typically 5% to 10% of the contract price. That deposit comes from your own funds, not from the construction loan. The lender will only release funds after each stage is inspected and approved, so there's usually a short delay between the builder's progress claim and the funds hitting their account. If your builder expects payment on the same day they complete a stage, you'll need to explain how the drawdown process works. Some builders are familiar with construction finance and factor in the delay, while others expect immediate payment and may charge additional fees if funds are held up. Clarifying the progress payment schedule and drawdown timing before you sign the contract will prevent disputes later.

When Refinancing or Equity Release Makes Sense for the Deposit

If you own a home and have built up equity, you may be able to use equity release to fund part or all of your deposit for the multi-unit development. This allows you to start the project without liquidating other investments or savings. The lender will assess your total debt position across both properties, so your serviceability will need to cover the existing home loan plus the new construction loan. As an aged care pharmacist, your income level generally supports this structure, but you'll need to account for any other debts such as car loans or personal loans. Another option is to refinance your existing home loan to access equity at a lower rate, then use those funds as the deposit for the construction project. This can work well if your current lender doesn't offer construction finance for multi-unit developments, or if another lender has a more suitable product for your project.

Call one of our team or book an appointment at a time that works for you. We'll walk through your project timeline, confirm your borrowing capacity, and connect you with lenders who fund multi-unit construction for pharmacists.

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