when buying a development site (2-3 unit) what is the best way to approch a lender ? What infomation will they be looking for ?
For example: is a lender tells me that i can borrow 350 k and i go ahead and buy a property at around that price, Then i want to build 2 units on that property. Will they finance the construction for a first time developer?
Do they need some sort of feasabily report that i draw up? Or will they work it out themselves?thanks in advance.
“It’s not how much money you make, It’s how you spend it that matters.”
Aspiring property developer
Giulio Taranto
Hi PP
Good on you for having a go and trying to get ahead.
Lending on a a development site is a little different to a standard residential IP lend.
Firstly the time frame between land acquisition and settlement can be a least 12 months on the basis that your Development Approval is already in place.
More than likely it will not be and you will be going to contract on a raw piece of land on the basis that you can gain approval prior to settlement.
This in itself will incur a reasonable amount of cost and in the event that the approval is not forthcoming will be money wasted. Esnure that you consult professional i.e Town Planner, Architect, Surveyors etc before you spend too much of your own money.
On the basis that you have now settled and intend to build 3/4 units on the land most financiers will lend against either a percentage of the actual costs of construction or against the end value of the development.
Bearing in mind that you will contract out the construction to a builder they will want to make sure that it is a fixed price quote and their will be limited cost overrun.
Always factor in a contingency percentage into your cash flow as lenders like to see that you have considered this.
GST is another factor so many small first time developers forget. It is more than likely you will be applying the margin scheme to the development so work your figures correctly to show a strong understanding of your cash flow.
A fall back position is also important. On the basis that you have not got pre-sales you will need to prove to the lender that you will rent the properties out after completion or be in a position through external income to be able to service the total amount of the loan.
Cheers Richard
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