Forum Replies Created
I had a look at this prospectus, Cromwell are one of the better managers in this area, in my opinion. The return is good, tax effective and they are not paying out of borrowed funds. However, you have to take into account that you are getting only $0.92 of property for each $1.00 you put in. When the trust is wound up there will be selling costs incurred as well as a bonus to the manager. In a very flat market you would have to doubt there will be much in the way of capital appreciation in these units.
My read is that it could be used very effectively by someone with non deductible debt and a strong income, because of the relatively high tax advantaged distributions that are expected, but it probably won't deliver much in the way of capital gains. But, then again, who knows?
newJo wrote:Thanks for your answer
I have 150K left in my PPOR plus an additional 30K of redraw and the last valuation was 400K but I fear the value has dropped since then.
What is the benefit of offset if I can just put my money into redraw as I currently do? Does an offset account decrease both properties?
I worry about an interest only loan because then I am purely gamboling on the CG as opposed to some kind tenent paying off my mortgage. Have I the wrong mindset? Without the CG I am just as well off paying my own mortgage without the hassle???
Sorry if that sounds negative but it is what I worry about and curious for the thoughts of investors, and/or putting my mind straight about the importance of CG…
The point of having the investment loan IO is that the debt on your PPOR is more expensive, as it's not tax deductible, you should therefore pay that off as a priority over any investment debt.The advice you have been given is not to not pay off debt, just pay off the more expensive debt first.
Danny F wrote:I am currently looking at buying my next property and have come across a few good commercial properties.My questions are, do the bank look at lending money to buy a commercial property differently?
what other responsibilities do i take on as a land lord of a commercial property?
With regard to finance, there are a myriad of options for financing commercial property. There are a number of lenders whose processes are very similar to residential lenders, while others are very different e.g. in some circumstances you can obtain a commercial loan without giving personal guarantees and there are products such as true asset lends with no servicing calculation required and other products that assess servicing solely against the lease over the property. Commercial property is a great area, good luck with your investing.
Have a chat with my old man, Frank Perry (http://www.townplanning.com.au). In twerms of those areas you mentioned, in Knox he did most of the planning on the expansion of Knox City Shopping Centre, Dandenong he rezoned the land that is now Somerfield Estate (2000 lots) and has worked for years on Dandenong Plaza and Parkmore Shopping centres, in Frankston he got a permit for 24 apartments last year behind ther police station and had previously obtained the permit for the development of the old Karingal High School site.
Hi Admos,
Try EcoU Homes http://www.ecouhomes.com they are based in Bundaberg but are becoming active up in Gladstone. I know Brad, who runs the company, well and have had numerous business dealing with him.
Regaerds
Alistairraymond123 wrote:What are some typical line fee rates?2% is typical for a line fee at the moment, it all depends on how they price the rest of the deal though.
Unfortunately I think you will find this will not be the case. The US buyers agent thing has been going on for years, it was popular for a perioid pre financial crisis, with people buying in upstate New York and the latest round has just been a revival of this in otrher areas. Likely it will go quiet for a while and then will come back as soon as the US market starts to pick up or the A$ starts to drop.
The problem is people with little money or sophistication are always looking for something that is realtively cheap to get into and will provide cashflow, there are far more opportunities for this type of purchase in the US than in Australia. Many of nthese people are also not willing or able to do their own research or educate themselves properly and so rely on people providing services to do this for them. It is easy for service providers to rip such people off, because of their lack of knowledge, and there is no financial incentive to look after them so many don't. To make matters worse, the people being wripped off don't want to admit they've blown their money and come on forums like this acting like religeous zealots in defense of their guru/service, the reult being more people being ripped off.
There are some good people providing services over their, and youy can do things in the US you can't do here, so there is a place for such services. People just need to be a little more sceptical and do a lot more research before spending their money.
Qlds007 wrote:Alistair my sentiments exactly.Ray seems to think that his local lender will approve the loan without any prior experience and that pre-sales are not a problem (might have to get him to market some of our projects) given that he is in the construction industry so all good there !!
Must admit 8.5% seems like a jolly good rate for a first timer.
Cheers
Yours in Finance
You might be right re the rate, I've generally found that unless a lack of experience can be mitgated by using a project manager that is well know to the bank, or an experienced partner is brought in, that getting the loan approved in the first place is the major issue rather than rate. The banks also seem to like playing funny buggers with the line fee, increaing the cost without raising the headline rate as theyt know that is all most people look at.
This probably a good place to raise this as a point for anyone readoing this who has not taken out a commercial construction loan before. With residential loans the headline interest rate forms the majority of the cost of the loan, this is not the case with contruction funding, cost is a mix of:
1. Fees
2. Headline interest rate
3. Line fee on undrawn funds
4. The discount or marketing fees you need to pay to meet your presale requirementFor smaller projects there may or may not be a requirement for a QS report, which is another cost, and for larger project there can be any number of specialist reports requested which can delay and add extra costs.
raymond123 wrote:Hey guys thanks for the replies. Just to clarify, We do work in the construction industry, but this project will not be built by us. We are just acting as the developers. We have an independent builder taking on all aspects of construction not us. All the information i am giving you is straight from the lenders mouth. i am not making this up or trying to interpret it. Like i said, "presales are a must" so we are aware of the need for presales. I didnt say we dont need pre sales. This is no issue for us, because the department of housing has an interest to pre purchase 80% of the units. In regards to the progress payments, i know how the claim process is from a builders perspective, as i work in the industry. However, due to the scale of the project, i have seen in similar situations sometimes a starting payment. Also, the lenders have been telling me the progress payments are structured in a specific way. This structure is what i am after. Also i am curious if the lenders terms suspersede the builders or if this is mutually agreed upon based on different projects. I appreciate the input regarding rates, percentage of funding, presales and the process etc. But those are not issues i need help with. Those have already been addressed. My question is ONLY based on the calculation of the interest. Perhaps, let me word it like this. Forgetting presales and the percentage of costs that is being funded, a construction loan has been approved. The project begins, takes 24 months, and the interest rate is fixed during the whole process at 10% with no charge on the undrawn amount and the total construction costs are $14M. Calculate the interest incurred. THATS ALL.Ray
Hi Ray,
The only way to do it is to produce a cashflow spreadsheet and calculate interest on a montghly basis. You can't ignore the line fee, you will be charged on the undrawn funds and it will be a very big part of the interest cost. You also won't get a fixed rate on a contruction loan, so you would be wise to sensatise the rate you use, although at the moment it seems more likely rates will go down than up.
Regards
Alistairraymond123 wrote:Appreciate the comments. Richard, thanks for your response. I have already spoken to a few lenders but just briefly over the phone. Pre-sales are a must which is not a problem. and this is our first project but we work in the construction industry so the lenders werent to fussed about the issue and they were the ones hinting at an 8.5-11% rate. As mentioned above, we are basing the construction phase at 24 months to be safe and we know based on builders quotes, coucil cost, legals, contingency's and professional costs etc the total construction aspect will be $14M. Land cost and interest on the land is not an issue so forget that. What i am really after is, when the progress payments are drawn over say a 24 month schedule, ie month 0 then 6, 12, 18 or something different? Unless i know this i can't calculate the interest component accurately.Ray
Hi Ray,
There are a number of different ways of funding development projects such as this. With the banks you will get up to 80% of costs rates will likely be around 3% over the 90 day bill rate, but they will also charge a Line Fee on the undrawn potion of the funds, which will likely be around 2% against the undrawn portion of the loan. Non banks are much more expensive for loans this size on headline interest rate, but will unlikely charge as much on the undrawn portion which reduces the differential to some extent.
Presales are obviously another issue, you could be asked for as much as 120% debt coverage by some lenders, and as little as 75%. If the project is sufficiently strong then you could possibly get it done with no presales through a private funder, but this would be expensive. It shoukld be noted that for smaller contruction projectas you can get funding with no presales for only a small premium on the price, but for $14 mill contruction your options in this aerea aere fairly limited.
When the drawdowns happen will be heavily dependenrt on the contract you negotiate with the builder.
Regards
AlistairMagpie2010 wrote:Thanks Kris, excellent info.. helped clear the issue up in my head. I'll check on the land tax issue as I was intending on using the same trust to hold the 2nd property to save money… but this may backfire if what you have suggested has meritI have tried to avoid headlease agreements with NRAS. There are some good properties using Ethan Model. Avoiding the Head Lease arrangement meant I could treat the transaction as a normal property investment within SMSF. The NAB had no issue, the NRAS Certificate is 'attached' effectively after the sale, so from a finance perspective the bank will lend 70% LVR, which suits me as it makes the property cash positive (after tax) which is fine.
My only concern is what guarentee witll the NRAS certificate be attached to the property upon settlement. The developer has offered a letter to ensure the property has an allocation. But I am buying off the plan , so a lot can happen in 12 months.
Not sure if others have experienced Ethan Model in NRAS purchases.
Regards,
Tim
Hi Tim,
You need an agreement with the NRAS manager, the thing the lenders look for are:
1. You are able to get our withing 90 days.
2. The cost of getting out (best if less than $1K).I have a small allocation in Qld in an entity with a business partner and we have structured our agreements to fit with what the banks want. These to things were what were stressed to us, and we have had no issue with buyers getting 80% LVR.
With regard to SMSF lenders, Westpac do 80% if there is a corporate trustee and 72% if there is an individual trustee.
Regards
AlistairMost lenders look at % of costs and % of end value when considering a maximum loan amount. You can include site costs in the construction loan as long as it can be catered for inside the loan limit. However, you won't get 75% of the end value, more likely somewhere between 65% and 70%. If you acheive presales then you increase the likelihood that you can get a bank to fund your deal, without preslaes you still have options but they are more expensive.
Hi Aalii,
Because of your income you would only be able to qualify for a loan with interest capitalisation. It will be more expensive, but you need to out this into the context of the time period of the loan. If interesst cost is a real factor in whether you do the development or not then you probably shouldn't consider it. The most imprtant factors for you are 1. getting a loan 2. getting enough money.
Your options in terms of lenders will also depend on where the proiperty is, as most of the smaller private lender who are willing to fund developments have geographic restrictions.Regards
AlistairI suggest you call Betty from Forex Sport, details below.
Betty LentakisDirectorForex Sport ABN 22 147 363 175AFSL 401379m. +61 (0) 401819316 | t. 1300 727 704 or +61 3 90081880
Level 3/170 Elgin Street
Carlton VIC Australia 3053
http://www.forexsport.comHi Paul,
There are lots of options avauilable to you. Nigel, who has answered your post already would be a very good option. I have many clients in common with Nigel and am happy to recommend him. There are also plenty of others, some of the better ones that I know of are RESULTS and Jennie Brown. I also have numerous clients in their respective programs.
Having said this, there are also plenty of dodgy people in this industry, so be very careful when making a decision. Forums like this are a good sounding board.
Regards
AlistairAnyone who is interested in the US should go and hear what Nigel has to say. What he is doing over there is certainly different to anybody else and he has actually worked on the ground, in realestate, in the areas that he deals. He's a great get for your meeting Troy, I'm sure people will really enjoy the session.
Regards
AlistairNickelbug2 wrote:We purchased a program through Cashflow Capital Pty Ltd. They offered:
* mentoring for life (which after a couple of months hasn't eventuated yet)
* full education service to help you to the next level of investing (?)
* 4 one on one meetings per year with a mentor (who's since left company) and a personal property coach and a life plan
* financial plan to make real moneyDoes anyone know anything about this company?
They sell cashflow positive properties as well for a fee so after listening to another person talk since we're thinking their education may not be too valuable.
Thank you for any opinions you can provide.
Hi Nicklebug2,
We've probably met as i speak about finance and property development at their seminars. If you want to send me an email I can help you sort out any issues you have. They are currently making some changes to the delivery of the mentoring, if you have received a lack of service it would be directly related to this. I highly doubt they are planning to not provide the services promised to you. Clients from Cashflow Capital are a tiny portion of my business and I definately wouldn't be risking my own reputation by speaking at their events if they were in any way dodgy or not delivering on their promises.
You can reach me on [email protected]
Regards
AlistairNigel Kibel wrote:I also provide not only advocay but education and other ideas such as directly investing in development projects. I am also based in Melbourne. I would be only to happy to have a chatI highly recommend Nigel, he has been in this game for a long time. In an industry filled with fly by nighters I don't think there is a higher commendation than this.
Regards
AlistairIf you paid cash for the block, it will be relatively easy to get finance for the contruction. If you want interest cap then there will be no servicing requirement. You can use any of the major banks and a large number of others lenders to do a deal like this.
Regards
AlistairDepends on how much, where, what type of property, the lease and your personal financial position. Commercial loans are not like residential loans where you can just look up a carded rate. There are some commercial loans that operate like this but most, particulalry the larger ones are priced for risk. Sorry to be so unhelpful, but it is not a question you will get a straight answer to the range would probably be somewhere between 8% and 12%, but could be lower or higher.
Regards
Alistair
