- Do you prefer to make use of a commercial loan when doing a property development project?
- If you had a business case with all the relevant information (in the form of a Proposal) that financiers are looking for, who will be able to present you better when negotiating Term & Conditions for a commercial loan?
- Do you seek to do your own commercial loan application or do you prefer to work through a finance broker?
- Do you think it is important to know how to compile a financial application proposal for financiers?
Thanks to all!!
1. yes
2. broker
3. broker
4. yesTerryw | 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
1 – it is horses for courses. If it is a development which dictates that you need a commercial loan or mezzanine finance from second tier lenders then you go that way if it is a resi investment then you get any one of the hundreds of investment loans available.
A couple of things to consider.
Firstly; although almost every broker will tell you they have access to commercial finance – most have no idea how to present a deal.
When it comes to the major banks; dealing with brokers is very different to home lending. Firstly they work on revenue models; The all up rate (usually a base plus a margin) can change from client to client depending on risk, security, size of the deal and overall revenue the bank gets from the client. If your base rate is 3.5, margin 4; all up rate is 7.5. Pay a broker 0.25% trail and the rate goes to 7.75% or the banker takes a hit on his revenue.
Broker commission is factored into the pricing model with all majors e.g. They have more room to move on price when you deal direct.
2ndly; most good commercial bankers don’t want broker deals. This is partly due to the reduced revenue impacting on their bonuses and the general quality of broker submissions (commercial deals).
When I was at NAB we had to let deals go to competitors but we knew without the broker involved we could have matched the pricing.
3rdly. Banks have moved away from dry lending e.g. They want the additonal facilities e.g. Bank accounts, depoist insurances etc. Dry lends have less chance of being approved.
It is commonly known NAB are the leaders in this field. They are the only ones that let the bankers approved their own deals; e.g. If you get a banker out to see you; they should be the one making the final decision on the deal…
ottg,
The best answer/s I could suggest are all listed clearly and simply above in bankers reply – but with greater spelling accuracy than I can normally muster up……. He is spot on.
Thank you all for the comments and Banker for sharing great points
If I dont want to work through a Broker initially who is the best person that can help to develop a compelling document that represents a development in the best possible way showing the financier that I know exactly the cost implications, risks and expected sales income based on fair estimates. Also:
·Enables me to approach financiers directly and negotiate directly
·Enables me to ask your financier better questions
·Put me in charge of your financial application and projectThanks all
Albeit the proposal is important; most bankers get commission and bonuses and will help package a deal (bankers are sales people – just like brokers).
The key points are;
Experience – is it your first deal / or have you developed other properties
Hurt money – you need money in the project. You can not rely soley on end value. In most cases you will need min 20% of costs to contribute; in either cash or equity in other property.
Exit stratergy – can you service the total debt or do you need to sell to repay debt. If you are buildig to sell you may require pre-sales.If you want some more detailed feedback e.g. Will it be retail banking or commercial banking? let us know the following;
How many properties are you building?
What is the land value?
What are the construction costs?
What is the estimated end value?Banker
Banker wrote:Will it be retail banking or commercial banking? let us know the following;
How many properties are you building?
a. What is the land value?
b. What are the construction costs?
c. What is the estimated end value? BankerStill early days – CBD redevelopment – subdivision and 3 dwellings
a. 700k
b. 270k x 3
c. 1.9m
RRP = 650k each but nor even sure about this!!
But I dont have an handle on all potential expenses – surely it will influence the proposal:
Total Acquisition Costs, Total Consultants Fees, All the Finance Cost, local Authority Fees,
Construction Cost, Legal, Advertising, Commission, Project Mngt. etcIs there a check list available? Pointers
Are they residential apartments or commerical?
I have seen a few 3 property developments done on fixed price building contracts which helps with costings. If not fixed price you will need a quantity surveyor. Best option is to push forward with plans and permits and them get some builders to quote.
In the short term it’s still worth seeing if you can get indicitive approval from a bank subject to plans, permits and contracts etc :- at least make sure you have enough equity / funds to contribute to keep the banks happy.
At a guess I would say you need approx 350k of your own money / avaialbe equity.
E.g. Land 700 plus build costs 300 x 3 = 1.6m
Bank loan 80%
your contribution 20% – (320 plus some costs)
I’ve added approx 10% (and rounded) the build costsBanker thanks for that. I just want to get back to my original post when starting this thread:
a. how to compile a financial application proposal for financiers?Now I also need to have a handle on the financial feasibility assessment which need to include the cash flow forcast before I can do a Proposal
See another post here: https://www.propertyinvesting.com/forums/property-investing/help-needed/4332638Surely this all goes hand-in-hand and the numbers must gel before I start with the DA application, even before I take control over the property.
Where can I go and knock for help?
A: variable. It depends if you are going to banks, second teir lenders or private investors. If the deal can be done on a retail basis; not much prep is required for the bank, commercial basis – a lot more is required, private equity or combination of bank and private equity is more complicated… You contribution (available cash and equity) will be a key factor that determines what sort of presentation you need.
B: re negotiating. 3 properties is too small for most senior commercial bankers. Therefore if residential you are better with less info via retail banking channels –
Where to go for help?
First you need to know finance options. The price difference from equity, retail or commercial bank will affect your costs – therefore you need to understand the funding options before you complete cashflow or real feasibility.
I would work on this basis
1. Basic estimate of costs – as you’ve outlined above
2. Finance options – bank, investor or both (talk to some bankers)
3. Feasibility study
4. Find investor – if required
5. Approached lenders formallySounds to me like you are at 1. You need to understand the finance part before moving to no 3.
Banker
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