hi,
i want to do a strata title deal on a single title block of 7 units.purchase price 900k,costs 90k,interest on holding for a year 96k/current rental return on 1045 p/w.strata'ed value upon sales = 1.26mil.
my problem is i cant finance 1mil,and have not got any partners as yet.maybe one.
even so,residential finance ruins this deal by having ongoing repayments each month.
i have done feasabilty and i can pay 10,even 15% interest out of the profits at the end of the project,but cant find a way to finance it thorugh banks/lenders.
is there a way to do it without jc or money partners?
thanks
jassorry it should say jv not jc partners
Are bank bills still an option? Do you have the $ for the 40% deposit on a commercila loan?
Scott No Mates wrote:Are bank bills still an option? Do you have the $ for the 40% deposit on a commercila loan?i am waiting to hear back on commercial loans now,its 30% lvr on commercial,i have 70k in LOC ready to go,this should near cover the strata titleing costs.
as a res loan i only have capacity for 123k now as my wife just lost her job.its easier for us to input out LOC funds and pay for the strata costs.
i have a friend with 105k combined income/230k loan against his 550k property,good credit,he can res finance upto bit over 400k currently.
so as a deposit assuming we paid the full 900k,we need 270k deposit,but my broker is still saying it wont work like that.
what i want to do is …..
my friend pays uses his borrowing power to get a 270k loan which is then used as a deposit for the comm. loan
i pay for the strata costs etc
then we start selling subject to strata and rest is all covered in sales no worries
then once sold off completely,we pay back the capitalised interest on the loan for time held,so maybe 6 months to 1 year max.if done in under 6 months with sales of 7 x 180k i can have a 20% gross profit in development loan terms,so its lendable from a feasabilty point of view imo.but it just wont work like that unfortunately.
any ideas,or know any lenders who will lend on "merits" like a develoment loan,or on grv terms of the costs vs sales feasabilty?
whats a bank bill?
jas
Jas
Yes with a decent equity injection from your friend then a gross realisation loan maybe possible.
Mainly these lenders want to see either some previous experience or pre-sales or at least the deal well covered by security.
Subject to the numbers interest capitalisation could be possible but the rate of interest and set up costs wont be cheap.
We have done a couple of similar deal over the last couple of months and very few lenders with such a risk appetite.
Richard Taylor | Australia's leading private lender
can you use the bank lenders through the commercial loan to finance the purchase with 40% deposit?
Qlds007 wrote:JasYes with a decent equity injection from your friend then a gross realisation loan maybe possible.
Mainly these lenders want to see either some previous experience or pre-sales or at least the deal well covered by security.
Subject to the numbers interest capitalisation could be possible but the rate of interest and set up costs wont be cheap.
We have done a couple of similar deal over the last couple of months and very few lenders with such a risk appetite.
i think i will ring u straight after christmas regarding a loan structure.the security is there for sure.
we want to borrow ideally
the purchase – 900k ,hopefully less after negotiations
and preferably the 90k in costs – if not we may cover this with our own LOC ourselves
so we are looking at a lend of say 1mil + capitalized interest till the end so maybe 1.1mil all up
now place that loan against security of the property being loaned on. its 7 older style small units on a 1017m block 1 street form beach. anything is this town selling at 180k is an absolute dump,so we figure if we sell at 180k for these ones they should dissappear real fast.so security is 180k x 7 = 1.260mil
1.1mil loan/1.260mil security = 87.3%lvr if we borrow the lot start to finish
if we pay the strata fees
1mil/1.260mil = 79.3% lvr
if they valued at 170k x 7 and fully financed= 1.19mil
1.1mil/1.19mil = 92%lvrthe security is their in my opinion.
what sort of interest are we looking at 10? 12? 15%?
does it require our financials to be good?,as really this loan is not based on us paying anything back during the loan period anyway,purely from a projected feasabilty point of view.
this is our first attempted deal,we have done courses etc to get to where we are today,but have no previous on the books deals completed as a portfolio.
if we have to walka way we will,we will sell this deal to anyone interested who can actually finance it. there is upto 300k profit in this thing,we want it bad,but will sell our feasabilty and deal if we have to.
Sounds extremely risky to me and I don't think you would be able to finance it.
You will get a max loan of around 66 to 70% of end value, including capitlising interest so you will need much more cash. Rates will depend on the lender which will depend on the number of pre-sales etc. maybe 13% on a low doc type basis.
BUT Are you sure there is profit in it?
$900,000 pp.
$40,000 Stamp duty would be around
$20,000 loan fees
$5,000 legals etc
$965,000 to get into the propertythen you have
$96,000 in interest – assuming 10% for 1 year
$X to pay for the strata
$36,000 RE commission on the sale
$5,000 legals on the sale
—-
= $136,000 + XTotal sale price $1,200,000
less $965,000
less $136,000 + X
= $99,000 less strata feesSounds like you are on one income and things must be tight if you can only service that amount you quoted. These things always take longer than expected and the costs always are more than expected too.
Maybe you estimates are much lower than mine, but are they realistic?
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
I am with Terry whilst the deal maybe doable with a cash inject from your friend the question would be whether it makes financial sense.
Max lvr is likely to be circa 65% of GR and if you are unable to support the loan the interest rate will be around the 13% Terry has indicated.
If it can be financed you have to ask yourself is it worth.
Richard Taylor | Australia's leading private lender
we dont plan on buying at 900k,we want to get it in the 800-850 area as we know what he paid for it and is looking to get back out of it.
im not posting my whole feasabilty but short points im reading off my feasabilty calculations are:
900k buy and all sold in 1 year,10% inc ALL costs as u mentioned duties/commissions,strata/deferred establishment fees and so on and so on
gross profit = $161370
gross profit = 14.68%buy at 850k ,held 1 year,10%
gp= 216370
gp= 20.73%buy 850k,hold 6 montha,10%
gp= $263967
gp= 26.5%to me,thats profitable,total of maybe 30-40 hrs of my work start to finish for 100-300k in returns clear of costs. i know its not the typical 80% of the population negative gearing strategy,but i am tryin to get into the business of making cash,not spending money each week.and i dont have a high income to offset by gearing.i will buy property outright for my portfolio for passive income in medium term future(3-5yr).
short term is build capital and start developing,which so far is easier to finance by the look of it(and that aint easy these days i know)
the sales prices are doable,infact we could hold them longer and sell them for 190k or more,but we would rather offer a good deal to others and sell at 175 or 180k .
if we cant finance by mid jan we will sell the deal to someone richer than us.
any more ideas?
i forgot to say thank you so far for your inputs,any more ideas or comments? something i have forgotten?
I don't want to dampen your enthusiasm, but think you might be a little low on your costs.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Terryw wrote:I don't want to dampen your enthusiasm, but think you might be a little low on your costs.how so?
we have priced stamp duty at 33k
we have priced strata/legals etc through council and my town planner which is 35k
agents fees through our agents is 35k
deffered loan fees from loans broker today is 1k per unit if sold inside 12 months
interest is calculated at 10% for those examples interest only x period heldmost of our costs are in town planner and agents fees more than anything else.
what have i missed thats major?
we have little items bundled in with those above,but here locally the strata per unit is actually 3k each,we are alloing 5 -6k each after legals and if we need an extra water meter,or small fence or something like that.
what else is there for this type of strata deal? cos i dont know any mroe than what we have ? and we have not been qouted any more by titles office/town planning/or agents for any of it so far,so far we are slightly over estimated on qoutes.
Hi J.
If you have done proper research into the costs and you think they are accurate then you should be fine. I haven't looked into this, but do know someone with some property which is unstrataed and it will cost him much more to strata. Lots of work needs to be done to comply with the various regulations such as fire exits and fire proofing etc.
Also allow for blow outs in time and costs. Most lenders factor in at least 10% on top for this.
Good luck
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Not sure which State you are buying the block in but at those figures it certainly isnt Qld.
There are not costs for Mortgage registration / Transfer or discharge and not sure who your loan broker but he is kidding himself if he things the deal would be done at 10% especially on lodoc and DEF fees of 1K per unit is ridiculous.
You would add in probably around 3% for application costs and a further 0.5% for both Bank valuation and maybe $2500 for lenders legals.
A GR loan is like no other and you have limited lenders (mainly private lenders) who can and do charge what they like.
I assume of course you aren't going to undertake any "substantial renovation" to the unit as if so this would trigger a GST payment.
Richard Taylor | Australia's leading private lender
what happens if you only sell 1 or 2 units, then rates start to creep even more upwards? will you be able to service the loan on a lower yield? You also have to put money into the sinking fund as soon as you sell one unit. Its not as straight forward as you think. If anything, you should try and get control of the property under an option, strata and onsell the same day as the option is called. Just an idea.
I agree with alani…Have you thought of options…you pay the current owner a small fee, and that will give you the control and an option to buy the units. If you can sell them, then you might make the exchange and settlement date the same as the exercise of your option.
while by no means this is easy, but it's doable. it requires careful planning and timing.
If you ask other people about this, they will most likely advise you against it…it's just way out of many people's comfort zone.
Best of luck.
Youness
yes guys.it is qld.we only just got qoutes on the strata for eg last week form the planner as we priced another similar deal,but there wasnt enough in that one.
in regards to interest – we can service upto 15% and make fair money from it.
time wise we can hold out to 18 months.
even though i have qoutes i redid my maths with
10k per unit for strata and legals(which is well over costs now)
10k per unit for sales(which is also well over costs)
15% interestif held for 18 months we are -30k in debt – so thats a no go
if held for 1 year we are 48k profit – thats a fair profit for 25hrs work.well it is to me anyway,but my not be lendable???
if done in 9 months we are at 88k profit
if done in 6 months – 127k profitso really,we need to turn them around inside 9 months to be profitable for us. this should be doable as at 180k per unit we are selling at the bottom of the market here and 10-15k under value and for an investor,they arent too badly geared at 180k buy and 180per week rental return.
then next person could reno and increase value if they wanted,we wont touch them at all,we do not do renos.
richard,i will send u a pm,u sound good on this stuff.u may get our business.
what sort of money would have to go into the sinking fund after first sale?
ideally we would sell all 7 subject to strata in first 8 weeks.but thats a dream come true though.hahahah
if this is a no go,so be it.
youness935 wrote:I agree with alani…Have you thought of options…you pay the current owner a small fee, and that will give you the control and an option to buy the units. If you can sell them, then you might make the exchange and settlement date the same as the exercise of your option.while by no means this is easy, but it's doable. it requires careful planning and timing.
If you ask other people about this, they will most likely advise you against it…it's just way out of many people's comfort zone.
Best of luck.
Youness
yes we know about options and had considered it,however we feel its riskier that owning it. we would really need a 12 month option contract ,but our biggest issue is finance,if we cant finance they buy and have to option it,how can we finance the buy when the option is due?
answer is we cant,so then not only have we failed to sell the 7 units,but we then have to break contracts on the few that may have sold because we cant finance it and cant honour the option.
its doable,and possibly if we were more experienced,it maybe the ideal strategy on this one. but for now its a no go i think.
You could get a 2 year option and then sell all before this time.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
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