Hi Guys
Any tips or hints on how to pay the mortgage on building a couple of units on a property i want to subdivide?? The bank I went to first told me they give money in phases and you pay interest on the amount when you get it. This is fine but surely there are other ways to do it???
Cheers
Coops
Not really.
You will have to pay out money in stages, to council, builders etc, so the lender will have to advance you money in stages. Interest will accrue on the money advanced on the daily balance.
The only other way to do it is to capitalise the interest so you will not have to pay anything until completion. But this will result in a much higher interest bill (as you are paying interest on interest) and you must have much more equity in the project for the lender to agreee to this.Terryw
Discover Home Loans
Mortgage Broker
North Sydney
[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
Thanks mate, by that do you mean borrowing a bit more in each installment, then using the left over amount after bills are paid to pay the interest bill??? (i.e installment of $40k of which $30k goes on bills then use remaining $10k to pay the interest payments)
I have heard of that but wasnt sure of its legality.
Cheers
Coops
Just think of it like a credit card you don’t pay back until a year or so later. You make payments, the balance goes up. Then interest is added monthly. the next month you will be paying interest on interest and so on until you start to pay it off.
Terryw
Discover Home Loans
Mortgage Broker
North Sydney
[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
Coopst, i am in the same boat and wondering too.
Surely there is a way to get the builder to cover the cost until completion. I have thought maybee if you offer a bonus to them to do this until completion, say three grand per unit, surely this would be cheaper than interest payable?
Anyone else overcome this situation??I dont think there is any way to avoid it. The builder is running a business, after all and will require progress payments based on the work completed. I am not sure of how many progress payments are ‘standard’ but I am sure that these would be common IMHO:
-Initial deposit to commence work
-Progress payment when walls go up
-Progress payment when roof goes on
-Progress payment at lockup stage
-Final payment on completion of worksAnyone like to help here?
Dev [cap]
yeah thats pretty much the installment guide the bank gave me…foundation,walls, etc etc….
my builder will be my father in law, who i am sure will help as much as he can, but he is hardly going to lend me $200k for 12months until i can start making an income from the units.
looks like i mite b eaing 2 minute noodles for a few months while the places r being built but it will be worth it once its all done.
my naive idea was that there must be a way to get around it, otherwise how do people afford to build much bigger developments on their own??
not looking at doing the build til early next year anyway so good amount of time to do some reading (and hopefully win lotto somewhere between now and then)
cheers all for your help
coops
There are organisations that specialise in development finance (look in the weekend papers for some). Banks are notorious for giving the worst kind, some of the “specialists” in this area know what it’s all about so will give you loan with staged drawdowns and allow you to capitalise the interest and repay the lot when the project is sold at the end. You will however need to prove to them that you know what you’re doing and have accurate feasibilities done to show all of the costs, the projected sales and timing of construction costs. All will need to be based in reality as they will do their own valuations on the construction costs and sales prices to prove it’s a good deal before they lend the money.
Developing is a lot of work, but really rewarding if you know what you’re doing and do it properly. Good luck!
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