Finance for construction of 6 townhouses

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.

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

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?

– 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.

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.

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.

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