Folks,
here is the hypothetical scenario:
I identify a property with potential for dual occ.
I propose a JV with the property owner – to apply for permits, build the two [say]Town houses, sell and share the profit with the owner at some agree %.
Can I raise finance for the construction? [seeing that the owner owns the land and I do not have it as collateral]. If so, what kind of (probable)structure, LVR, terms & Conditions will I be looking at ?Thanks in advance
Kattanp.s tried searching for similar topics/posts but unfortunately no keyword search seems to be available
Hi Kattan
Sure you can arrange the finance but you would be able to offer the security of the land and project unless you actually settle on the purchase as it will be in the name of the current regisetred owners.
If you have additional security or equity elsewhere that is sufficient then Yes no problems.
Unless funding is an issue why would you not settle it and retain 100% of the profit.
Cheers
Richard Taylor
Residential & Commercial Finance Broker.
Licensed Financial Planner.
Ph: 07 3720 1888
[email protected]Richard Taylor | Australia's leading private lender
Richard,
The following are the reasons why I would prefer not to buy:1. Funding limitations: this way my total funding requirement is limited to construction only; not the land portion and hence gives me the capacity to do bigger projects.
2. Risk minimisation: if the permits don’t come through I can get out of the situation with minimal damage; will not be burdened with the property.
3. Transfer cost [stamp duty, owner to me] reduces overall project profitability.
let us assume I have 20% of the Construction Cost.
what is the best way to structure this relationship between the land owner and myself ?
Is it possible to raise this construction loan without providing the land as collateral [higher LVR, etc]?
Regards
KattanIt would not be possible to raise finance the usual way. Usually the person on the title has to be the one on the loan. You may be able to find a private lender willig to take the risk, but the risk for them would be very large ~ it would basically be an unsecured loan.
In this situation maybe you could talk the owner into taking all risk and you take a consultant`s fee.
Terryw
Discover Home Loans
Parramatta
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Terry maybe right but i think you would struggle to even find a private investor would want to take the risk on what effectively is an unsecured loan.
No normal lender will advance you anything whilst the property is in the existing owners name.
If you are worried about the permits not coming through then make the purchase from the existing owner “subject to the issue of a satisfactory Development and Building Approval”. You will have the same outlay whether you have settled on the property or not.
Cheers
Richard Taylor
Residential & Commercial Finance Broker.
Licensed Financial Planner.
Ph: 07 3720 1888
[email protected]Richard Taylor | Australia's leading private lender
hi kattan
what you can do is get the land owner to give you an option on the land for say 12 months
this give you the time to get it thru council then you have a second agreement that they will do a jv with you and they throw in the land as part of that jv agreement.
the new entity that is the jv is the company ( this you need to work out what structure you want to use) that buys the property after the 12 months.
depending on the lender they will pay out a portion of the land and constructions and the land component can then go to the land owner.
the short fall which will be about 30% of the land value stays in the project as vendor finance until the end.
simply really.
can you get a lend on the above.
yes
any problems
yes I haven’t seen the end cost prices and you will need to have a profit margin of 20% ex gst and total construction costs
inc real total land value inc vendor finance back.
put all the above on a piece of paper with a coffee or talk to a broker and they should be able to understand.
is this type of setup unusual
no
st george and nab would be my best bet for duplex two town houses.
even your solicitor can draw up the jv ( but they charge)
if you have both signing for the loan no problem if the other doesn’t want to sign then vendor finance back put option the first part.
and as they are your jv partner pay them 1 dollar for the option fee ( as I am a t—-t ar-e and never want to pay).
my .002here to help
contact me [email protected]What Grossrealisation said is a good way to do it.
Keep in mind –
* Finance will be on the land and construction – you will need extra for demolition/removal if there is an existing property. (You may be able to sell the house)
* Worth getting a valuation at beginning (to correctly price the property (no misunderstandings even if you add some premium)Regards
JohnInspired Finance
(02) 9944 7776
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