Hi there
Looking for advice as to affordability for an upcoming potential project. Our current situation is approx $350,000 equity in current home which has been put towards a small 2 property development about to commence over the next 2 weeks. The cost of the development will be approx $635,000 with a projected value of $800,000 (hopefuly this will be complete by around February of next year) plus we have a $50,000 line of credit. Our joint income is approx $126,000 pa. Given that when this project is complete the value of all 3 properties will be $1,275,000 & 0ur total amount of debt will be $780,000 giving us a new equity value of around $500,000 with a rental income of approx $650.00 per week would we be in a situation to take on another project of similar value? The cost of the next development would also be around $640,000 valued at approx $800,000 on completion with rental incomes around $560.00. I realise that these are not positive cash flow but there will be high capital growth. I should also mention that we have no car loans or other major debts & our credit card is always paid off as we go.
If all of these figures add up then I may need assistance from a financial person on this forum who can supply a letter to me backing up this information as the Commonwealth Bank may not come to the party for me. The problem is that I have acquired the land for the next project on an ‘Expression of Interest’ which after the initial deposit of $3,000 requires no further funding until settlement of land ($316,000)around January next year.However the letter to the land developer has to also include the value of the houses even though I may not be building them straight away.The letter therefore has to account for the full value of $640,000. I don’t see why it is a problem for the bank as we are not at this point asking for money & everything will be subject to finance so if we get close to settlement time & things are not panning out then we can still pull the plug if we have to & remembering that the actual loan amount at settlement time will only be the $316,000.By that tine the land could be worth $400,000. I know it is a big call but being relatively new to all of this I have seen so much great advice on the forum I’m certain someone can help. Also Steve if you read this thanks for writing such fantastic books in such a down to earth way & I look forward
to meeting you at the Sydney seminar in September.Cheers everyone!
Sparky[biggrin]
From what I understand of it and I might be wrong, if after 3 properties with a value of $1,275,000 and mortgage of 780,000 you want to buy an additional 4th propery for 640,000, you might be stretching your finances too thin. The value of your portfolio would then be $1,915,000 of which $1,420,000 would be loans(assuming you borrow 640,000, and your equity in the portfolio would be 25%…not really enough to pay your mortgages unless your rental return was really fabulous, not the average 5-6% rental yield or you made a substantial downpayment to increase equity. That said, its doable.
As you’re new to this, it might be better to take it slow, get the 2nd and 3rd project going, ready and rented with cash flow coming in, after a year you’ll be able to assess what your net cash flow situation is. While things sound great on paper sometimes that projected weekly rent doesnt come in because of vacancies or other costs, and you wouldnt want to take on too many commitments and get in over your head.
If you have an accountant run all these senarios with him
Just my .02
Hi Sparky
Looks ok on paper and I haven’t crunch the numbers.But the only thing I see wrong is there is a lot of should be worth and approx cost of this and that.
For this to work correctly you really need to be closer to the current value is this, the build cost is this,the value of similar is this area is this.
excel spread sheets and power point are good programmes for this.
The more info the better.
Don’t try to run until you can walk, you are going into building here so build not slow but steady.
As a developer.
I will tell you that you build bit by bit if you order the bricks before they are needed you pay waiting time its the same with banks but there waiting time can be a lot more expensive.my advice is start small or go into asmall syndicate with a builder and watch how its done.
easiest way to find a small syndicate is talk to your local real estate or the agent in the area you want to build he will know the local developers and should be able to help.
If in sydney tell me the area you are looking at and I will be able to steer you towards a developer in that area.here to help
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