All Topics / Finance / Finance for construction of 6 townhouses

Viewing 17 posts - 1 through 17 (of 17 total)
  • Profile photo of Shane13Shane13
    Participant
    @shane13
    Join Date: 2011
    Post Count: 11

    Hi,

    I am looking to buy a block of land and build 6 Townhouses. Approx numbers would be Land: $500k and Tender $1.2M.
    I am looking to secure finance with no pre-sales but with a view of selling them all prior to completion.
    Does anyone know of any lenders who would consider an 80% lend on this deal with an IO term of 18-24 months at a rate of around 6% or better?
    The land would be in a sought after area and construction through an established builder.
    I could contribute a 30% deposit + costs but would prefer a 20% deposit + costs so i leave myself some cash for contingency.
    Any feedback would be much appreciated.

    Cheers,
    Shane.

    Profile photo of Corey BattCorey Batt
    Participant
    @cjaysa
    Join Date: 2012
    Post Count: 1,010

    You’ll need to complete the constructions prior to settlement, as the purchasers will struggle to gain finance for split contract deals, let alone mid construction. :)

    Whats your experience with development, is this your first? With these variables you may have difficulty gaining the desired rate, LVR AND facilities.

    Have a chat with a broker regarding your specific deal so they can go through the options available. There may be options available to get you a decent deal depending on certain specifics.

    Corey Batt | Precision Funding
    http://www.precisionfunding.com.au
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    Investment Focused Finance Strategist - servicing Australia-wide

    Profile photo of Shane13Shane13
    Participant
    @shane13
    Join Date: 2011
    Post Count: 11

    Hi Corey,

    They will be sold off the plan but wont’t settle until after completion.
    Yes this will be the first development. I will be doing this with a friend and we both own properties and are in a good financial position.

    Thanks for your feedback.

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

    Maximum loan would be 60-65% lvr of net GR value.

    You won’t get anything like sub 6% unless you are in a very good financial position and can support the peak loan repayments without needing to take potential rental income into consideration.

    Even then you would need 2 Years Tax Returns.

    If you have these and you can do 80% of net GST then probably looking at late 6%.

    Without this then private finance only option and you are looking at around 11.5%.

    Cheers

    Yours in Finance

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
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    0-40 Properties in a decade with an unencumbered value of over $35M. Email for a copy of my API article

    Profile photo of Shane13Shane13
    Participant
    @shane13
    Join Date: 2011
    Post Count: 11

    Thanks Richard.

    Just to clarify. Is the LVR based on valuation or land + tender?
    If valuation stacks up at say $2m but we only require $1.7m to complete could we borrow against the $2m value?

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

    RAMS *may* consider it under resi lending but the application would need to be extremely strong and max LVR would be 60%.

    Under commercial lending – Bankwest would do the loan at 70% LVR with no presages provided that you can service the loan without the use of the proposed rental income. Rate should be the least of your concerns but doable at approx 6%.

    Is there any equity in existing property that you can tap into?

    TheFinanceShop | Elite Property Finance
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    Residential and Commercial Brokerage

    Profile photo of BallerinaBallerina
    Participant
    @ballerina
    Join Date: 2011
    Post Count: 63

    Bank of Queensland did one for us recently, for 5 townhouses, to be kept as rental properties. So, no presales at all. 65% LVR, including GST (usually not the case), because it is done in personal name. We are not GST registered. We do have development experience, strong equity position and serviceability without rental income. Managing the project ourselves. We have approached branch owner directly and presented our project ‘face to face’.
    If you are in Brisbane, PM me and I can give you contact details, if you wish.
    You have to know your costings in and out. And, it would be beneficial if you have at least DA ready, which would show that you do have a project.

    Profile photo of wilko1wilko1
    Participant
    @wilko1
    Join Date: 2010
    Post Count: 510

    – do the land division first into 6 blocks of land.
    – increase the equity in the deal.
    – if the houses are stand alone, split building contract into 6 contracts one for each property.
    – should be able to do resi lending (after titles are issued)

    Cons are that it takes a additional 6 months or so whilst you wait for your land division to go through.

    Profile photo of BallerinaBallerina
    Participant
    @ballerina
    Join Date: 2011
    Post Count: 63

    Wilko 1, this is great idea, if there is enough land. In most cases multiunit sites do not have enough land for subdivision and /or council will not allow subdivision to be done first for community title scheme. It is applicable for low density residential (individual housing zoning).
    Shane 13, check it with your town planner and designer before adopting the approach. Or find another site where you could implement Wilko’s system.

    Profile photo of Shane13Shane13
    Participant
    @shane13
    Join Date: 2011
    Post Count: 11

    Hi Wilko & Ballerina,

    I am buying 2 blocks of land side by side and they will be combined to fit the 6 Townhouses. Land Registration will be in approx 2-3 months and the plans are already in council. Construction should commence around the same time as registration.
    This project is not a typical one where i am project managing. I am purely financing the deal while a building company looks after the rest. I have a solicitor to looks over the contracts and i have friends who have done the same with this building company who are also local.
    I have made one enquiry with Westpac who said they could finance 70% of the deal with an IO term of 18-24 months with a rate in the high 5’s. I have a few other contacts in the banking world so i will touch base with them and see what they could offer.
    I will let you know how i go.

    Thanks again for your comments.

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

    Westpac only goes to a max 65% they can go 70% but its on a case by case basis (meaning that your application would need to be extremely strong). Plus they will want to cross securitise your resi property.

    BoQ also has very conservative servicing so again you need to have strong servicing to go with them.

    I reckon you will find bank west to be your best option.

    TheFinanceShop | Elite Property Finance
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    Residential and Commercial Brokerage

    Profile photo of wilko1wilko1
    Participant
    @wilko1
    Join Date: 2010
    Post Count: 510

    Hi ballerina

    Once council have granted a land use application (DA). Then it is not their authority to say if community title division will happen before the construction or after the construction.
    You can pay all your division fees, water fees, have your water meters connected and the block level clear and pegged and you can get the community divisions through before construction

    You can’t say in most cases there is not enough land for subdivision. As I have recently subdivided 6 townhouse on 860 sqm. And also done 2 townhouses on 200sqm (100sqm allotments) it all depends on the development policy and if you can do it.

    Some development polices have no density limits, or medium density (150sqm) or high density limits.

    Profile photo of BallerinaBallerina
    Participant
    @ballerina
    Join Date: 2011
    Post Count: 63

    Hi wilko1
    Thank you very much for this information. I will definitely see how it can be implemented in the areas/councils we operate.
    Just to clarify: if you have a party wall acting as boundary, middle line is a new boundary? Apparently Council is happy to proceed with survey plan endorsement without buildings being constructed, but are shown on DA plans?
    Is development staged in that case?
    Sorry for the ignorance, but the concept is great and I am trying to fully understand it.

    Profile photo of wilko1wilko1
    Participant
    @wilko1
    Join Date: 2010
    Post Count: 510

    So you have gone and got
    A) a planning use application
    Then
    B) applied for building rules consent (usually private certified)
    And the c) got granted development approval.
    Then it falls on your surveyor and his license that if he pegs the boundary walls (even party walls). He is then certifying they will be built on that exact boundary. Therefore when you build you want to get it SPOT on. As it has already been electronically created on the new titles.

    Not every surveyor will do this. Because it is their name on the line in the end. You can have things amended . But you really don’t want to go down that path and it’s expensive. Better for the builder to just get it right. (Otherwise the survey that has already been lodged would be different then the build) ie you don’t want to be out by 100mm.
    10-20mm would be ok tolerance or perfection and just build it correctly.

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

    Agree won’t get 6 done unless you can service the total loan without having to rely on rent.

    BoQ won’t touch it unless you have a very strong asset position. Local managers have no credit discretion and HQ are very picky.

    Westpac certainly won’t do it on a conventional basis.

    Bank West are ok but as Sharin said rate is neither here not there if you can’t fund the deal at all.

    We have just financed a 30 townhouse development i am doing with my business partner from the forum although our asset position is a bit different to most forum clients.

    Cheers

    Yours in Finance

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
    Email Me

    0-40 Properties in a decade with an unencumbered value of over $35M. Email for a copy of my API article

    Profile photo of Rhys AdamsRhys Adams
    Participant
    @rhysadams
    Join Date: 2014
    Post Count: 14

    Hi Shane

    A private lender would be the place for what you are looking for (except for interest rate).

    This sounds to be a pretty straight forward transaction where you could achieve the following loan terms:
    – Interest rate – 10%
    – LVR – the lower of 80% of Total Development Cost or 70% of Gross Realisation (excl. GST)

    The higher cost of this style of funding has to be weighed up against the marketing costs of preselling, the potential “discount” required in selling off the plan and if you have a positive view on the market, locking in sales at today’s prices.

    Personally I see a lot of borrowers initially baulk at the cost of this style of funding (especially when new to development and used to <5% home loan rates) but after reviewing their project feasibilities do see the sense in it.

    I agree with your strategy of maximising borrowings to keep control of funds as a contingency. I am currently funding a project where there was an unexpected cost of $120k following soil tests. In this case the developer didn’t have ready access to cash so has been a bit of juggle and some uncomfortable phone calls since.

    Good luck with it, I hope to see you keep us updated on your progress.

    Feel free to post any further questions.

    Cheers
    Rhys

    Rhys Adams
    http://www.redcommercial.com.au/
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    Commercial Property and Construction Finance Specialist

    Profile photo of Alistair PerryAlistair Perry
    Participant
    @aperry
    Join Date: 2004
    Post Count: 891

    Hi Shane,

    What you are after is not too difficult as long as you don’t expect bank lending rates and fees. 6 Units with no presales is very difficult with the majors, even where you income is strong they often knock doe the LVR and/or discount the valuation. Please let us know how you go with financing his project.

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