Hey guys and girls
Was wondering if the finance gurus could help me out with my best options for the following finance I require.
6 units being built on one block
Total end valuation of around 1.65-1.68 million.
Currently have a loan of 228k on the land 80% LVR of 285k purchase price.
Land division/demolition costs, council approvals are all paid and accounted for. Or cash available to pay for them.
Can do full doc with 2 years tax returns. Borrowing capacity isn't really my major issue. 320-370k gross income.
I am not as concerned about getting the best interest rate (although always welcome) but my main goal is to contribute as little as additional capital as possible.
Full construction costs are yet to be finalized.(in a month or two) but if we just went over the top with 150k per unit (only 2 bedrooms 1 bath)
Plus 60k builders fee
You're going to struggle to get the amount you are after Wilko. The banks all max out at between 65% and 70% of the end value net of GST. Your income is not relevant to this, although it will probably mean you have a lower presale requirement. There aren't too many lenders around doing higher LVR's on development finance at the moment, although if your asset position is Ok outside of this project you may be able to attract a mezzanine funder to make up the difference, this is very expensive though.Colin RiceParticipant@fmsJoin Date: 2011Post Count: 338
Can the land be split into 6 strata blocks?
If so could look at doing a strata/build rather than a build/strata since you have the cash to do this without extra finance required.
Intention is to hold the units. Would the end valuation still be net of gst still? If there is no gst being incurred. Even with gst, they have to use your financials to approximately calculate how much gst you would pay don't they? In this say 10k gst per home. – 60k total.
– .6 = 1.63 mil
x that by maximum lend of 65% (assuming lower amount)
– 228,000 original loan.
– 60000 builders fee
770k / 6 = $ 128,500 approx.
i did go overkill when I said 150k per unit. It most likely will cost around the 130k mark. They are pretty small floor plans. 45sqm slabs double storey 90sqm total only 2 bedders.
Land can be subdivided but it's 3 sets of 2 units. Each unit having one party wall. Ie 1-2 3-4 5-6.
So possible if there's a bank that would let 2 dwellings (owned by same owner) be builtColin RiceParticipant@fmsJoin Date: 2011Post Count: 338
Not sure what the rules are in your state (Im in WA) but you would be able to strata into three seperate titles and each would be treated as a seperate property.
You could sell either of the three titled blocks as land only, land with building approval and plans or as a house and land package on completion.
The banks would view each property as a seperate property and would be worth more therfore could borrow more overall.
Finance would be available but would be advisable to run the future plans with potential lenders given they are dual occupancy with a party wall before expending time and $$$ on building plans and subdivision.
If you are not able to separate titles pre-construction, which would be unlikely in Victoria (I can't comment interstate) then the loan will have to be commercial and servicing would be constructed under commercial policy which means you would have to be able to service the end debt without using prospective rent. The lender would still fund net of GST because you would have to pay it if forced to sell. It's very difficult to qualify for a commercial construction loan without debt clearance. You can probably do it through a private lender but you could end up paying as much as 13% interest and upfront fees pushing 3% before disbursements such as legals and valuation.
I realise I'm not painting a rosy picture, but this is the reality of the current market for construction finance, its not easy.
– servicing without counting the rents wouldn't be a problem.
– so always will be net of gst. (Any comments about how they calculate what your gst impact would be, do they do it individually or have a generic 5-10% etc if using the margin scheme)
– can you explain debt clearance ? Is that just meeting the servicing requirements?
The titles I'm not 100 percent certain could be split before construction.
The ownership structure would be as follows.
1-2 (party wall) would have 2 different trusts as owners (but same directors)
3-4 (party wall) have same owner
unit 5-6 (party wall) would have the same 2 trusts as unit 1-2 (and the same directors)
i could certainly have the services made available but I have run into a couple lenders that have said that because the driveway/garaging for all 6 units would have to be done at once that they wouldn't lend to build the house.
If servicing is available without rents then you should be able to get up to 70% of the end value, but don't discount this as an issue as while the reality is you would be able to service the loan, bank calculators can make a good situation look very poor after they hit you with a short ammortisation period and high interest rate in their servicing calculations. You are unlikely to get this without the GST being discounted, but you can probably get it reduced so its not 10% of the total end price, its a negotiation process with the assessor so there isn't a firm answer that I could give on this. By debt clearance I mean pre-sales. If you have adjoining walls then forget about funding them individually, you probably wouldn't have been able to anyway as generally you need slabs down before you can get the subdivision through. After reading all of your comments, I think you should be able to get this deal funded, but very few commercial construction loans go through easily these days, so be ready to push your case strongly.
Thanks alistair. I should get you to look over or do the next one. This is my first step into commercial lending having done all resi before. So I always knew it was going to be another kettle of fish to contend with. But they don't tell you the actualities of it. Ie they say they can lend at 70% but once they take of gst, off a contingency amount, rack up your repayment periods and interest rates. That 70% quickly becomes a 60% lend
Hi Wilko, I'd be happy to go over this or future ones with you. In terms of what they don't tell you, it gets worse, some apply a discount to the end value abndlend against the discounted figure, so 60% of value can be more than 70% of value, depending on how it is determined. The same with loan costs, some loans include a rate on the undrawn portion of the loan limit, so you can have a case where 10% is cheaper than 6%. What makes matters worse is most people go into a bank branch and ask questions, but a high proportion of business bankers have very little experience or knowledge of development funding, so there are cases where you can be declined by a bank, go back through another channel and get an approval relatively easily.