All Topics / Finance / Subdivision development finance

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  • Profile photo of zenqzenq
    Member
    @zenq
    Join Date: 2005
    Post Count: 26

    I have a 12.5 acre block of rural-residential land suitable for subdivision into 1 acre blocks. The land is pretty rough and hilly, so I would probably make a smaller number of larger blocks to make them more appealing, ego 3-7 blocks of approx 1-5 acres each. Currently there is a large but basic 2 br home on the site. I have a fair bit of equity: I guess the property is worth close to 400k and I owe around 270k. Due to other loans, I probably can’t service a full-doc loan to 80%LVR. I want to subdivide the land now (there a an adjoining parcel of road reserve of a few acres which I can buy pretty cheap which I’d like to add onto the subdivision), but am uncertain the best way to get finance. My partner may be able to get some cash by selling a neg geared Sydney property which keeps us poor, but failing that, I wonder about development finance. Could I secure this loan based on pre-sales, for example? Obviously I want to minimise fees and interest, but also keep it simple (my experience so far with banks has been that every 3 week settlement or transfer turns into 3 months, accompanied by massive stress and fees due to maxed out credit cards etc.
    Suggestions are welcome.

    “If you look long enough into the void the void begins to look back through you.” Nietzsche

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 12,024

    Hi dallas

    Couple of things i would do is:

    1) Maybe take an option on the parcel of land adjoining your property and make the option subject to a satifactory DA for the total subdivision. This will save you having to settle on it although in WA I believe you still stamp duty on the Option.

    2) Yes Development Finance is a consideration but on a land subdivision you will be limited to what you can borrow as an overall percentage.

    I would suggest you probably cost the subdivision first then maybe look to incorporate the costs and interest into a standard finance deal. I am unsure as to what amounts you are referring to.

    Look to roll the interest up whilst you are progressing with the subdivision. Presales will certainly help encourage lenders to want to make this happen.

    Another option although slightly more expensive would be a combination of mezz finance or a JV with a local developer.

    Cheers Richard

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