Hi Alfresco

A bit of time has passed since you posted your questions but I thought I would answer nonetheless.

Some key concepts of ‘commercial’ development funding:

– Presales – banks will typically require a level of presales prior to funding construction. As a general rule net sale proceeds (sale prices less GST and selling costs) will need…[Read more]

Hi QM

A typical loan for commercial property will be short term, say three years. This is driven by lender’s cost of funds with longer term capital being more expensive. As an example, we obtained quotes recently for a client for a 3 or 5 year facilty which were priced with a 0.47% spread between them.

Loan term can also be tied to the lease…[Read more]

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…[Read more]

Hi Terry

My comments re granting of mortgages were based on the exercise of the option and subsequent settlement and transfer of title.

Cheers
Rhys

Hi Cheryl

There are a number of unknowns here so will try answer some questions in general terms:

Will the sale to the builder be considered presales for traditional funding? Generally no, the list of conditions for a sale to “qualify” for “traditional” funding is usually a couple of pages long. To quote directly from a Terms Sheet of one of the…[Read more]

As suggested by Terry, we have seen a lot of self employed business people using their SMSF as an investment vehicle to buy premises from which to operate their business.

The ability to do so is obviously dependent on the availability of capital yor boss holds within super but given the relatively low price he is looking to pay there may be…[Read more]

Hi Steve

Your project will be easily funded with or without presales.

Presales reduce the risk to the developer, not just the lender but I would go down the no presale path unless you have a negative view on the market as you’ll be able to achieve better sale prices marketing the completed product. At the proposed leverage you are proposing,…[Read more]

Hi Keiko

If you’re looking for passive investment I’d be looking for a property with a long term lease to strong tenant. There is more profit on offer with the vacant/near expiry strategy but commercial property is not like resi where vacancies are easily filled and this strategy might be best left to more experienced investors in this asset…[Read more]

Hi BNS

Just another investment strategy for consideration given your objective of retirement in 15ish years would be commercial property.

$1m of equity combined with debt should provide capacity to invest in commercial/industrial property with a decent tennancy profile. Yielding +8%, lock in borrowings <5.50% and you have a positively geared…[Read more]

Hi QM

Is the property for investment or occupation?

If its for investment the lease covenants would be the most critical aspect? ie strength of tenant, what security is in place, remaining lease term before expiry, who pays outgoings? And almost forgot, how much rent are the obliged to pay?

The above aspects, inparticulary rent and lease term…[Read more]

Hi Amelie

As long as the business and your partner can show sufficient income to show debt servicing and you have 30% equity to contribute to the purchase (plus costs) you should been in a position to finance the property.

Cheers
Rhys

Hi Tranquilles

To be able to give a ball park valuation can you provide a few more details?:
1) I assume the 800m2 refers to the land size rather than lettable area, if so, what is the lettable area?
2) How long until lease expiry?
3) Does the property have an industrial or commercial use?

Understanding the above I’ll be able to refer to some…[Read more]

Hi Amelie

Your solicitor would be able to provide the best advice but perhaps a trust structure where you are a beneficiary may work and provide you with some protection?

In what structure do you operate your business together?

You also need to be mindful of stamp duty ramifications for you to add your name on title down the track.

Where are…[Read more]

Hi Benny

There are a couple of ways that you can look at construction funding, either traditional bank funding or through “Private” lenders.

To answer your first question, when looking at construction funding a lender will consider two ratios:
1) % of Total Development Cost (TDC)
2) % of Gross Realisation (GR) (which as Richard pointed out would…[Read more]