I have purchased a property within 90 minutes of Melbourne in a country town with a growing demand for small units. The property has plans and permits in place for eight units. My problem is working out the best way to submit a propasal for the finance. Any suggestions? I want to make the proposal as professional as possible to eliminate any question(for the bank) that this is going to be a viable proposition. I have thought of trying to market and attain contract sale notes on as many of the units as possible before building starts. I am new to property development and would appreciate any suggestions.
Cheers,
CanuckHi,
I don’t have much experience with getting developments financed from scratch.
However, some general advice is to approach the lender in advance and ask them what sort of information they require and then shape that into a professional submission.
Remember that a bank wants to eliminate risk, so from their perspective they will want to know what happens if you default. They wouldn’t want to be left with a partially completed site.
As such, finance for developments is usually offered on a progress payment basis depending on the % of completion, rather than 100% up front.
Accordingly, you need to specify how you require the payments and I’d imagine providing this request in some kind of budget form would be appropriate.
Remember that the best person to ask is the lender.
Regards,
Steve McKnight
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Hi Canuck
My name is Ross, we have had our own family development business for 2 years now. We have had projects from simple buy/renovate to residential subdivision. In dealing with finance providers on these commercial ventures you will soon learn that their only priority for them is to mitigate all risk for themselves. They want security to cover their entire exposure (this can be negotiated down) thru the project property, your home,director garantees and pre-sales.
Pre-sales is the one you want to exploit because this is the only one that covers you and the bank.
If you can presell enough of the project to cover all construction costs you can shop around with confidence that they will all want to borrow you the money. You are in the postion of power now because they have to fight to get your business and make sure they know that you are shopping around. Drop names of people at each lender you have spoken to or make them up because they are surprisingly flexible.If your venture was mine I would get indictative costs from the architect whom drew the plans. From this work out how many units you need to sell to cover your costs. Get a local agent to market the properties on an incentive basis but only market the ones you wnat presales for. List the other units as already sold therefore displaying demand and also establishing the price as the market level. We used this tactic with our subdivision to raise the price being paid in our area from 55K to 75K per block simply by saying “look half the blocks are already sold at 75k if you don’t want to miss out this is the price you pay now.
You can then put the other units on the market once completed so people can see/touch and feel. They will always pay more for the finished product and that way you maximise your return.
If you want to have a chat email me on [email protected] and I will send some contact details.Go Get ‘Em
Rossco
quote:
“look half the blocks are already sold at 75k”
um, isn’t that lying? False misrepresentation. Or whatever else you want to call it.What would happen if someone found out and got p—ed off about it.
Spot on Louise you are up sh-t creek without a paddle. This is in direct voilation of the Trade Practises Act.
Thanks for the feedback. Good to see all points of view.
I agree that pre-selling is critical to the success of the financial backing. I do have interest in three of the units already, so this should help greatly. I have had one piece of advice that suggested getting these interested parties to sign a “Contract Note” on the units. This commits them to buying the unit on completion. But it does not obligate me should the project not proceed. The “Contract Note” would have a reference such as “subject to financial approval or the like” documented in it. Anyone familiar with “Contract Notes”?
Thanks Rosco for the advice on what the bank requires and how to approach them, but I am concerned about the misrepresentation issue if the units are not really sold. At the end of the day I want to be in Property Development for a long time. Honesty and integrity goes a long way to ensuring your name is respected in the business.
Does anyone have an opinion on the trends in the country areas? There are some good rents being achieved putting the properties into positive cashflowright away.Cheers,
CanuckHi Canuck
I feel I may have been slightly mis-interprted on this. I have been dealing in an area which has had significant capital growth in the past two years. Prices of completed houses had skyrocketed but land had lagged well behind. We chose to bring land prices up to a fair market value. Since we set the new level it has been rising consistantly in line with the median house price. We were not ripping people off but educating the market. We are well regarded in our area as developers for our quality of development and value provided.
As for “misrepestentation” our strategy is to keep possession of freehold property instead of taking a cash profit so all the blocks listed as sold will never go on the market. They have been sold to our trust. If you build the eight but choose to keep 3 as positve cashflow you are entitled to list them as sold ie. not on the market.
We pride ourselves on our integrity but we push a
hard bargain.As for your contract notes best to speak to your conveyancor/solicitor about the standard “special conditions” included in an off the plan contract.
Best of Luck
Rossco
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