All Topics / Finance / Finance for first time developer

Viewing 14 posts - 1 through 14 (of 14 total)
  • Profile photo of dlbrownliedlbrownlie
    Member
    @dlbrownlie
    Join Date: 2013
    Post Count: 5

    The Situation: We're looking at a block with a current DA for 7 units, predicted sale price of  $260,000+ each or about 1.8 million. total cost of the project inluding land, build contributions and  50,000 for contingencies is 1 400 000. We have a combined (2 brothers) income of 150,000, 300,000 in equity, and 100,000 in cash.

    We went to ANZ but got knocked back because they said I our income is used up servicing our current home loans (all of which are positively geared, but they discount rental income and work with P&I repayments for their calculations). they want us to presell at least 2 of the units or enough to cover half the debt. basically they're only willing to loan a third of the cost of the project. real estate agent has told us that presales are a non option in our area.

    Wondering if anyone could give some advice about how we might get finance in this situation, are some banks more likely to play ball then others, how to go about finding private investment etc.

    Profile photo of TheFinanceShopTheFinanceShop
    Participant
    @thefinanceshop
    Join Date: 2012
    Post Count: 1,271

    ANZ will not do this under resi terms no way. What LVR are you wanting and just to be clear you are wanting to do this under resi or commercial?

    Regards

    Shahin

    TheFinanceShop | Elite Property Finance
    http://www.elitepropertyfinance.com
    Email Me | Phone Me

    Residential and Commercial Brokerage

    Profile photo of dlbrownliedlbrownlie
    Member
    @dlbrownlie
    Join Date: 2013
    Post Count: 5

    for working out LVR do you use realisable value or current value? We're buying the land for 249,000 if that helps. Whats the practical difference between residential and commercial. We'd look at any option to keep the ball rolling, we currently have a 3 month option on the block and builder ready to start as soon as we can sort finance.

    Thanks.

    Dan

    Profile photo of dlbrownliedlbrownlie
    Member
    @dlbrownlie
    Join Date: 2013
    Post Count: 5

    to be clear we have 400,000 to invest and would need to borrow a million to develop a property worth 250 000 that we hope to sell for 1.8 mill

    mattnz
    Participant
    @mattnz
    Join Date: 2007
    Post Count: 574

    When you say $300k in equity, are you referring to equity that you can redraw, or total equity stuck in properties, that you would need to sell to extract?

    i.e. $1.5M in property with $300k equity you can't access

    Do your numbers include interest payments and gst on the sales?

    Profile photo of dlbrownliedlbrownlie
    Member
    @dlbrownlie
    Join Date: 2013
    Post Count: 5

    300K comes from refinancing the other properties, (whole portfolio worth about 1,000,000 if that's relevant). I've read about people getting loans for 70% of the realizable value of a property without pre-sales, is that a possibility or a fairy tale?

    Profile photo of TheFinanceShopTheFinanceShop
    Participant
    @thefinanceshop
    Join Date: 2012
    Post Count: 1,271

    The lazy response is go see a banker or broker but here is some information to get you started. You have the option of doing development finance either on residential or commercial terms. Residential rates are cheaper and commercial rates are higher. LVR plays a big part in both scenarios. Due to the number of dwellings this would be deemed commercial. I have only ever done a maximum of 5 under resi terms. So this would definitely fall under commercial.

    Commercial works completely different to resi from the application to the processing. Lenders will lend based on either a % of the hard costs or a % of end of value, whichever is the lower. Based on the numbers you have provided (assuming that you tick all the other boxes in which there are many) then you would be looking at $900k possibly $1mil.

    The bank will need to know many things like do you have any experience in doing this? Do you have a Fixed Building Contract from the Builder? What does your asset sheet look like? You also need to have presales. 

    Regards

    Shahin

    TheFinanceShop | Elite Property Finance
    http://www.elitepropertyfinance.com
    Email Me | Phone Me

    Residential and Commercial Brokerage

    mattnz
    Participant
    @mattnz
    Join Date: 2007
    Post Count: 574

    Only if you can demonstrate serviceability. They will only allow around 75% of your rental income. Are your properties still cashflow positive after you refinance the $300k? What would they rent for in worst case scenario? Is this also cashflow positive on the cost to build?

    Its normally around 65% GRV and net of gst, also based on the valuation on completion, which is typically 10%+ lower again than the value you can sell them for, as they value it on an "in one line" basis. In your case, likely to be based on around 65%*1.8M/1.1*0.9 = $957k

    Also ANZ advised me that they need 10% contingency on the construction cost, so looking at $50k higher costs from their perspective.

    There are 2nd tier lenders that can do that sort of deal.Typically 3% of loan value in fees plus 12-15% interest, no presale requirement.

    Profile photo of dlbrownliedlbrownlie
    Member
    @dlbrownlie
    Join Date: 2013
    Post Count: 5

    This is our first project like this how ever the builder is very experienced and almost exclusively builds this type of project. building contract is fixed price. The other properties will be cash neutral after refinancing. We've been told by real estate that pre selling is not an option in our area so we're looking for an option that won't require that, Mattnz could you point me in the direction of these 2nd Tier lenders?

    thanks

    mattnz
    Participant
    @mattnz
    Join Date: 2007
    Post Count: 574

    Just sent you a PM.

    Profile photo of Alistair PerryAlistair Perry
    Participant
    @aperry
    Join Date: 2004
    Post Count: 891
    dlbrownlie wrote:
    The Situation: We're looking at a block with a current DA for 7 units, predicted sale price of  $260,000+ each or about 1.8 million. total cost of the project inluding land, build contributions and  50,000 for contingencies is 1 400 000. We have a combined (2 brothers) income of 150,000, 300,000 in equity, and 100,000 in cash.

    We went to ANZ but got knocked back because they said I our income is used up servicing our current home loans (all of which are positively geared, but they discount rental income and work with P&I repayments for their calculations). they want us to presell at least 2 of the units or enough to cover half the debt. basically they're only willing to loan a third of the cost of the project. real estate agent has told us that presales are a non option in our area.

    Wondering if anyone could give some advice about how we might get finance in this situation, are some banks more likely to play ball then others, how to go about finding private investment etc.

    On the basic numbers provided you can probably lend a little over $1.1 mil, assuming you have included capitalised interest in your costs you probably have sufficient funds to look at financing this project, i highly doubt anyone will do it with no preslaes though.

    Profile photo of TheFinanceShopTheFinanceShop
    Participant
    @thefinanceshop
    Join Date: 2012
    Post Count: 1,271

    There are funders that will do it with no presales but the interest is around 10%

    Regards

    Shahin

    TheFinanceShop | Elite Property Finance
    http://www.elitepropertyfinance.com
    Email Me | Phone Me

    Residential and Commercial Brokerage

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 12,024

    And there lies one of the problems.

    New developers want residential rates and usually want to try and save on application, valuation or line fees etc.

    Experienced developers realise it is more important to get the deal done and the overall interest rate and set costs are fairly minor in the scheme of things.

    10% is about par for the course and with a couple of percentage in set up costs should be factored into the overall deal.

    Cheers

    Yours in Finance

    Richard Taylor | Australia's leading private lender

    Profile photo of Alistair PerryAlistair Perry
    Participant
    @aperry
    Join Date: 2004
    Post Count: 891
    Qlds007 wrote:
    And there lies one of the problems.

    New developers want residential rates and usually want to try and save on application, valuation or line fees etc.

    Experienced developers realise it is more important to get the deal done and the overall interest rate and set costs are fairly minor in the scheme of things.

    10% is about par for the course and with a couple of percentage in set up costs should be factored into the overall deal.

    Cheers

    Yours in Finance

    I couldn't agree more Richard. Pricing is the least important factor in a development loan.

Viewing 14 posts - 1 through 14 (of 14 total)

You must be logged in to reply to this topic. If you don't have an account, you can register here.