Forum Replies Created
Better idea, go to http://www.townplanning.com.au which has zoning maps and overlays as well as a measurement tool so you can measure the area of the block you are are interested in and any other block in the area that is of interest. as with onthehouse.com.au the measurement accuracy is not perfect, but it is certainly sufficient for an initial investigation.
Hi Harry,
If you are just going to build 2 or three dwellings then get yourself a builder and manage it yourself. If you end up going larger then it may be worthwhile to get a project manager and tender out the work.
Regards
Hi Tom,
My view is that despite the various issues that have confronted the industry in recent years it remains a great industry, particularly if you enjoy being involved in and talking about the property industry. The average age of brokers remains pretty old, so there is a need for new blood. The downside is that it takes a while to obtain a critical mass of clients so that you aren't having to scrounge for the next dollar, but once you get there the financial and lifestyle rewards are very attractive. If you would like referrals to people in the industry who can assist you in the process of becoming qualified please feel free to email me, I'm only to happy to provide some assistance in this regard.
You are probably wasting your time speaking with CBA re this project. Firstly, because you will almost certainly be building more than 5 dwellings they will apply an 20% "in one line" discount to the valuation, they will quote a max loan amount of 70% GRV (Net of GST), but post the discount you really only get 56%. Is worse though, if the loans over $3 mill they will require you have 50% equity in the project. Financing the construction s a long way in the future anyway, you need to maximize the profitability of the project by designing and getting approved an appropriate design for the development.
My understanding of the legislation is that you can capitalise rental losses s there is no requirement to top up cashflow from outside an individual investment but, as Terry stated, you can not have a particular structure that's only purpose is tax reduction. It would be pretty difficult to justify how directing all income from a property to pay down a non deductable debt would be for any purpose but minimising tax. You shouldn't trust anybody but a tax accountant on issues such as this.
No problem. Depending on the size of the development you end up doing the file may be dealt out to a property finance specialist within the bank, it certainly will if you are building 18 apartments, they have different policies with regard to things like the balance sheet of the borrower than a regular relationship banker. Your banker's advice is probably correct if the scenario were to sit within his portfolio, but the thing is it probably won't. You also need to recognize that very few bankers are much good at processing development deals so the feedback you have received may also be just plain incorrect. The things you will need in an equity partner are that they have a substantial net asset position and experience with the sort of development you are looking at, if they tick these boxes then get their input early. It is not a matter of the more dwellings you can get on the site the more money you will make, it will be a trade off against number of dwellings, the price you can get and how salable those dwellings are (apartments don't sell well in every location as an example) and the cost of building. Things like lifts and basement car parks add significantly to build costs and it is is often the case that it is more profitable to build a smaller development to avoid such expenses. Good luck with your site, development is a great area and I'm sure you will do well out of it, just go through it methodically and make sure you get good advice on all areas of the process.
Hi Getafix,
One thing you have to understand is that there can be a big difference between what a relationship manager says they can do and what they will actually do. The %'s you quoted are not the policy of any of the majors, although they are closest to what ANZ can do. ANZ would require 75% debt coverage with presales, I suppose this may end up being 50% – 70% of the units, but the presale requirement should always be quoted as a % of debt coverage. All other majors require at least 100% debt coverage. If you get a permit for an apartment development and it is ANZ you will most likely be declined based on both your lack of experience and if you do not have a strong balance sheet outside of the project, regardless of how good the project is. If you are building townhouses you will probably be ok.
Hi David, It depends if you are wanting to borrow to develop the land or just for the acquisition. These are two very different scenarios, but either way, rates are very low at the moment.
Hi,
some lenders are willing to apply an enterprise valuation against the profitability of a business and lend against this figure. With a Motel Leasehold there are also lenders with specific policies on valuing businesses. I haven't done a loan against one of these for a while, but have done quite a few in the past, I'm sure there are still options around. One thing that would be of great importance is the length of the leasehold.
We've put up a short summary of the changes on the web site for our town planning business:
http://www.town-planning.com.au/reformed-planning-zones-victoria
I think the biggest changes have been with regard to the Business and Industrial zones. Particularly with regard to where you can put supermarkets and offices.
A friend of mine used to be the property manager at Buxton's in Brighton, her name was Anna Cameron but she was married recently so i don't know if she still uses that surname, she's really good though.
You can probably get the 9 financed with no pre sales, if you're prepared to pay higher fees and rate during construction, you could then finance out the end product with a few different lenders. You will get lower LVR, but they also value the property differently, so id doesn't mean you can borrow less money.
Hi Chris,
I don’t think you should apologise for expressing an opinion, that’s what forums like this are for. I also think your analysis of the world economy is pretty good, where I think you have things wrong are the conclusions you have drawn in terms of the effect on property prices and whether property is a good investment at the moment. Lets start with the comments about the $A and what is going to effect its value going forward, this is going to be effected by supply and demand from overseas and demand for commodities will be a big factor in demand, so I think you are correct in your analysis that there will be some downward pressure on the dollar in this respect. However, the $A will also move in relation to it’s relative buying power against other currencies, and the “money printing” you have mentioned will likely cause inflation in those countries and have a downward influence on buying power of those currencies.
For those who have not been exposed to monetary theory, a summary is that the value of money is determined by the relationship between the amount of money in a system and the amount of goods and services that it is used to transact, if the amount of money in the system increases without a similar increases in the amount of goods and services being transacted then there is a reduction in the value of money (excess supply over demand). Quantitative easing, money printing or whatever you want to call it pushes money into the economy without a direct effect on the amount of goods and services being transacted (it is a purely monetary transaction) and is therefore likely to cause inflation.
My take on the effects of “money printing” is that it will lead to further appreciation of the $A in the long term, vs the $US. However, this is by no means certain as it probably should have happened already and, as the GFC proved, financial markets are not always rational. If it does happen then there will be a sharp increase in commodity prices, in terms of $US, regardless of what happens in China. In any case, inflation in the US would have a downward influence on the value of the $A and a downward influence on inflation in Australia, as imports would become cheaper. This is where I think you make the largest mistake in your analysis, because our dollar floats, we don’t import inflation from other countries, quite the opposite.
China differs from us here, their currency does not float freely and as such they can and will import inflation. It is therefore possible that even if demand for our resources drops, the international price could still rise if there is further devaluing of the $US.
In Australia there has been a large increase in the volume of money compared to the growth of the economy, and an increase in the percentage of private to public debt. These are all pointers to inflation within Australia, though not to the same extent as in some other countries, which would reward property owners and borrowers. But this has nothing to do with international factors, they are purely domestic. Property prices here are high, but they are supported by a tax system which rewards property ownership and investment to a greater extent compared to other countries, not to mention a national psyche that promotes property ownership to a greater extent than in most other countries, if these factors are taken into account I think it is hard to see prices going down too much.
Hi Chris,
I agree with you that the current "money printing" that is so prevalent throughout the world is going to drive inflation in those countries. However, we are not pegged to the US dollar or any other currency so there is no reason that will lead to inflation here, more likely it will have a -ve effect on inflation as our dollar will rise against those currencies. Inflation here will be largely due to the actions of our own Government. However, the actions of the last few years are quite likely to lead to inflation down the track, although i am by no means 100% confident this will happen or when, but if it does it will be to the advantage of borrowers and owners of assets such as land, as well as owners of commodities.
My comments on your post are that you will probably do well with the strategy you have chosen, but the reasoning behind your strategy is not completely sound.
Current CBA special offers:
* 2yrs @ 5.14% (2 year loan term)
* 3yrs @ 5.54% (3 year loan term)
I would think these are very attractive rates, especially given that cap rates remain reasonably high for commercial property.
We recently completed a 33 lot subdivision with block sizes ranging from 1.200 to over 2,000 sq m, the cost of civils was in the order of $75K per block. We had to put in a retarding basin and childrens play ground as condition of the permit, in addition to roads, services and fencing, all of which cost a fortune. Even if you had no issues like this, the size of the blocks would mean costs could easily be over $100K per block. I agree with Richard re the difficulties you would have in getting finance, if you don't have any experience but i would also be concerned about you taking on such as large first project. Its a good idea to take baby steps first, I formed this view from bitter experience by the way.
Nigel Farage is awsome, I love watching him rip into the leaders of the EU. Anotehr worth watching is Daniel Hannan from the Tories.
Qlds007 wrote:And there lies one of the problems.New developers want residential rates and usually want to try and save on application, valuation or line fees etc.
Experienced developers realise it is more important to get the deal done and the overall interest rate and set costs are fairly minor in the scheme of things.
10% is about par for the course and with a couple of percentage in set up costs should be factored into the overall deal.
Cheers
Yours in Finance
I couldn't agree more Richard. Pricing is the least important factor in a development loan.
dlbrownlie wrote:The Situation: We're looking at a block with a current DA for 7 units, predicted sale price of $260,000+ each or about 1.8 million. total cost of the project inluding land, build contributions and 50,000 for contingencies is 1 400 000. We have a combined (2 brothers) income of 150,000, 300,000 in equity, and 100,000 in cash.We went to ANZ but got knocked back because they said I our income is used up servicing our current home loans (all of which are positively geared, but they discount rental income and work with P&I repayments for their calculations). they want us to presell at least 2 of the units or enough to cover half the debt. basically they're only willing to loan a third of the cost of the project. real estate agent has told us that presales are a non option in our area.
Wondering if anyone could give some advice about how we might get finance in this situation, are some banks more likely to play ball then others, how to go about finding private investment etc.
On the basic numbers provided you can probably lend a little over $1.1 mil, assuming you have included capitalised interest in your costs you probably have sufficient funds to look at financing this project, i highly doubt anyone will do it with no preslaes though.
Thanks Terry, it's still a work in progress but I think it's already pretty useful.
