Hi,
I am in the process of negotiating to purchase a property in the Brisbane region in a medium density residential zone. The block currently has a house on it which is tenanted. I am looking to remove the house and build a block of 10-12 2-bedroom units on the property, and at the end of the construction, strata the units, rent them all out and revalue them individually so that I can get my equity back out and buy something else.I was wondering if anyone knows what the best way to obtain finance approval to do this would be. I also have a smaller project (dual occupancy) which I have been working on, and the financing of the deal is as follows:
* The lender will value the block of land
* The lender will lend me up to 95% of the value of: the total of the land plus the construction costs
* The estimated rent will also be taken into account when assessing serviceability on the loan (in addition to my income)Can anyone advise if the process will be similar for the construction of a much larger project (ie the 10-12 units), or do the lenders have different criteria for something that size.
Thanks for your help!
Jason
Hi Jason,
The larger development will require a commercial constrruction loan. You will probably be able to get up to 80% of costs, but everything is very situation specific when dealing with a commercial lender.
Regards
AlistairHi Jason
As Alistair has pointed out Development funding is a wee bit different to the standard house construction.
You are probably looking at a max LVR of 80% of the land value and 80% of construction costs subject to a max of 65% end value.
If you intend to retain the units after completion you will need to show an exist strategy to meet the serviceability criteria. Pre-sales are an alternative if you wish to keep some and off loan others.With that sort of loan amount you will need to have solid equity and income and a good fixed price contract from a repudiable builder.
In saying all of this having developed and built over 100 units / tonwhouses in Brissie in the last 10 years it is well worth it with the right project.
Richard Taylor | Australia's leading private lender
Richard, what/where/how has your strategy worked best for the right project (most profitable). Is it easy to get a fixed price contract in a rising market? Regards, Linda
It helps when your partner is a Builder.
Richard Taylor | Australia's leading private lender
Of course, mine's just a plumber. Is there a certain design/theme/size/attached/detached that you have used? Thanks, Linda
Just getting back to the topic of financing the project. Can anyone tell me the types of things the banks look for in particular when reviewing your business plan for finance of a large project of say a block of units or townhouses.
cheers
Ezn
For a virgin developer they would probably insist on a proportion of pre-sales maybe 3 out of 10 with deposits taken and also look for good serviceability in your existing income.
In addtion they would want to be seeing at least a 20% return and that you have cash reserves to carry the debt in the event of contingency.
Richard Taylor | Australia's leading private lender
thanks for that Qlds i had one more question though. I know most banks will give you a loan for a development but what would be the best one for a 100% finance job of developments.
You wont get 100% finance for a development.
Normal max would be 80% of land value and 80% of development costs subject to a max of 65% of GR.
Sure you can go higher with an element of Mez but the interest rates are starting to climb and the profitability fall,
Richard Taylor | Australia's leading private lender
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