After completing several renovation and small development projects we are keen to continue with more of the same, but possibly some larger renovations in more expensive areas of Melbourne. So far we have been using standard loans from Westpac at 85% LTV and using our own money for the 15% deposit, costs, interest repayments and renovation costs. On one project at at time of $300,000 – $400,000, this isn't really any problem, but we are hoping to have maybe three or four larger projects on the go at the same time, so to cover all the deposits, costs and reno costs on that would mean a lot of money tied up. Is there a better way? Has anyone used private investors for their projects? Where do you find them, what interest rates do they expect or how much return from a project do they expect if they cover all the costs? Are there any loans available that can be taken out at the value of the completed project, loans which the interest can be capitalised on and just paid out at the end of the project?
Any information would be very welcome. Thanks.
You are referrring to Gross Realisation loans Buzzer and yes they are available from certain develepment style lenders although they probably wouldnt be interested in doing a single house at a time.
These tend to larger unit / townhouse developments from circa $500K upwards and the interest can be capitalised within the loan which is standard for larger type financing.
Obviously where you are using a mix of primary and secondary financing the rates of interest and establishment costs are a lot higher due to the risk factor.
Private finance is also available (we ourselves lend out money for such deal) however again not to 100% of vauation.
Richard Taylor | Australia's leading private lender
Thanks for your reply Richard. That sounds like the type of finance we might be looking for. We are looking at renovating higher priced properties, potentially around the $1,000,000 mark.
If I run through a brief scenario of a potential renovation project, would you be able to guide me as to how it could be financed? Hopefully. Here goes, with some nice round numbers:-
Purchase Price: $1,000,000
Stamp duty & costs @ 6%: $60,000
Renovation costs @ 15%: $150,000
Selling costs @1.6% of sale price of $1,500,000: $26,400TOTAL COSTS $1,236,400
So, the question is; Is it possible to finance all those costs – the whole project, on a gross realisation loan, capitalizing all the interest payments, so that payment is only made on the sale of the renovated property?
Thanks for your help Richard
Yes it would depend on the end sale price, your external income and whether you had an unconditional pre-sale contract on the property.
Richard Taylor | Australia's leading private lender
It is unlikely that we would have an unconditional sale contract on it, as it will just be a renovation – what we have done in the past is simply put it up for sale when the renovation is complete. Is it possible to have a valuer place a "finished" value on the project that would satisfy the lenders?
In answer to your other questions – the sale price would be approximately $1,500,000, working to a formula we have used in the past. By our external income, I presume you mean our income from other sources, if so, then my business partner's and my combined external income would be approximately $150,000 to $200,000 per year. We would probably undertake the project under one, or more of our company names.
What sort of fees, interest rates etc are involved in this type of borrowing Richard and how would it be structured?
These deals are done on a deal by deal basis.
Normally you are looking at circa 67-75% of GR, interest rates can vary from 9.5- 20% depending on the strength of the deal and on how much mez funding is involved.
Richard Taylor | Australia's leading private lender
These deals are done on a deal by deal basis.
Normally you are looking at circa 67-75% of GR, interest rates can vary from 9.5- 20% depending on the strength of the deal and on how much mez funding is involved.
Richard Taylor | Australia's leading private lender
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