Hi Wilko, I'd be happy to go over this or future ones with you. In terms of what they don't tell you, it gets worse, some apply a discount to the end value abndlend against the discounted figure, so 60% of value can be more than 70% of value, depending on how it is determined. The same with loan costs, some loans include a rate on the undrawn portion of the loan limit, so you can have a case where 10% is cheaper than 6%. What makes matters worse is most people go into a bank branch and ask questions, but a high proportion of business bankers have very little experience or knowledge of development funding, so there are cases where you can be declined by a bank, go back through another channel and get an approval relatively easily. 

If servicing is available without rents then you should be able to get up to 70% of the end value, but don't discount this as an issue as while the reality is you would be able to service the loan, bank calculators can make a good situation look very poor after they hit you with a short ammortisation period and high interest rate in their servicing calculations. You are unlikely to get this without the GST being discounted, but you can probably get it reduced so its not 10% of the total end price, its a negotiation process with the assessor so there isn't a firm answer that I could give on this. By debt clearance I mean pre-sales. If you have adjoining walls then forget about funding them individually, you probably wouldn't have been able to anyway as generally you need slabs down before you can get the subdivision through. After reading all of your comments, I think you should be able to get this deal funded, but very few commercial construction loans go through easily these days, so be ready to push your case strongly. 

You're going to struggle to get the amount you are after Wilko. The banks all max out at between 65% and 70% of the end value net of GST. Your income is not relevant to this, although it will probably mean you have a lower presale requirement. There aren't too many lenders around doing higher LVR's on development finance at the moment, although if your asset position is Ok outside of this project you may be able to attract a mezzanine funder to make up the difference, this is very expensive though.

Hi Jamie,

You can't really pigeon hole commercial property under one banner. Everything you have listed may be true for some properties but not for others e.g.

1. Finance – it easier to finance some commercial properties than it is residential, you don't even always have to guarantee commercial loans.

2. Leases are generally much longer than for resi properties and, depending on the type of property, demand can be extremely high (how many vacant supermarket buildings have you seen?)

3. Growth is based far more on commercial factors than are resi prices. If you have a long lease with increasing rent built in you will most likely have steady capital growth. High leasing demand has a greater impact on price than it does with resi property. You shouldn't assume growth will be lower, its not always the case.

4. You do need more capital. To buy quality you generally need a lot more because not only are possible LVR's lower, but better quality properties are generally quite expensive.

5. Tenants usually pay outgoings, so things like insurance, land tax etc don't come from your own pocket.

I hope these comments are of assistance.

Thanks for the comments Will. The developments we have financed are already pre-sold, that hasn't been a problem. I'm pretty concerned about the settlement risk on these projects though as the sales prices, while currently supported by the market, are very high. Hopefuly the activity you mention helps keep prices high for a little while. Don't worry about my sob story, I'm still going to do OK in that project.

Ozman,

If all you are interested in is the interest rate on your loan UBank are probably the cheapest at 4.62%, you have to go direct with them, it will be very much a no frills product and i'm not sure if there are any upfront fees. The lowest carded rate that I know i can write, from the top of my head, is Mac Bank 4.84%, there are some bells and whistles available with this product and we do use it fairly often. Most of the majors will price match and if the loan is large and low LVR you would probably be able to beat this rate. The problem with rate shopping is that the lowest rate might not be the type of loan that suits your circumstances the best and having a sub optimum loan structure can very easily cost you a lot more money than can be made up by a slightly discounted interest rate.

It's not like the old days when everyone's standard variable rate was the same. A bigger discount doesn't necessarily mean a lower rate any more. It also depends on what else is being offered in the market at the time, as none of them like being beaten for good business. I know this answer seems evasive, but truly the only real answer is that it depends on both the loan scenario and the timing.

Hi BertieB,

I'd be interested to know what you think the job of a broker entails?