A pensioner (no other source of income & no savings) has asked me to advise her on the following: Owns and lives in a knock down in good location. Land value $250k conservative. Wishes to develop 3 units/townhouses on block, one as PPOR. Similar units valued at $250 – $300k ea with huge demand as rentals, bringing $250 – $300/wk. My advice is to talk to my broker with the hope that he will find a financier willing to take her on, given no income. Can anyone recommend a financier or better advice? There are developers lining up to get the block but I don’t wish to see her lose control. Thanks for your thoughts, Geoff.
If we could all get finance that easily wouldn’t we all be doing it!! I don’t like your friends chances here.
An option would be to say sell the block for X amount with the rights to a particular one of the properties of certain size, fixtures etc at a set price. Though, this deal would only find a developer if it was a good deal for them.
Is the pensioners aim to build these and hold them long term as an income, or to sell the two others and pocket a bit of cash?
When you consider it they own the property i assume. that’s $250k in savings esentially. To build 3 units would require around $450k in finance. Plus you don’t know what problems will occur in the subdivision. Sometimes the costs can blow out. You also have the demolition costs to factor in. So, it’s $700k minimum in costs if this pensioner knows what they’re doing and how to coordinate the building (more if they give it to a Simmonds or AV jennings to do). Then they will sell for 300k each say. So, two of those is $600k sale. It means that the property they live in has cost the pensioner $100k to have it.
sounds like a good idea, but the $$ will be the problem.
Thanks Nat for your reply. The strategy would be to develop & hold as inheritance for children. Your development figures scare me. I had envisaged 3 x 2br units @ maybe $75k – $80k each tops! As you say, the $$ are the question, hence my post.
Sorry, $150k each would get you large townhouses. Even double storey.
For low quality and maybe 10sq each, then you could probably do it for around the $100k mark. But, it would depend on where the house is in terms of suburb. In the suburb will people pay $300k for a low quality 2BR place? If in Sydney, then likely yes.
Thanks again Nats, the property is on the NSW Central Coast (Woy Woy peninsula) and would get the returns without effort. This end is not the problem, how do we get her in is the question.
Hi
I am a mortgage broker in Sydney and we have a private financier who funds these sorts of deals. He will basically lend on 70% of the end value, subject to the location of the property etc.
If the values come in at $250,000 each, the 70% of this is $525,000. This should be enough to cover the construction costs, and there is meat in there for any extras that may pop up and it may even be possible to capitalise the interest until it is complete.
Rates are high, but not may questions are asked!
AS she has no income, this would not get through a normal lender.
Can you tell me the lcoation? (maybe offlist?).
Terryw
[email protected]Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
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