Hi all, great forum!
I'm looking to start my first property development – small subdivision or small townhouse site. I was wondering weather anyone has any tips for me getting development finance. I have very little equity in my own home – will the banks generally lend you money just on your development's own merrit? If so how much will they cover and what is a reasonable interest rate? Will they let you pay the interest at the end once you start selling the project?
If I can't raise enough deposit myself where is a good place to look for JV partners?
Dale
it may be possible to get up to 66 to 70% of the end value in some circumstances. But if you are just buying 1 block, probably not. You will be limited to 80% to 90% LVR on the current value.
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
Best advice get an equity partner (cash man) involved if you have limited funds available. You can borrow up to 75% via a first and second mortgage but it has to be a very strong deal!
How big is the subdivision you are doing?
Most of the majors will allow you to borrow up to 80% if it is 4 units or less on single title.
Personally I think you will find it very difficult.
You mention you have little equity so yes – you will need an equity partner / cash man.
You’ve also said it will be your first project – getting a cashman to back an inexperienced developer on their first project (with little equity) would be a bit challenging.I am being devils advocate. Great to see the ambition but you need to have something to bring to the table…
You could get maybe refinance to 90% of your current property (subject to LMI). E.g. Property value x 90% less existing debt = fund available.
Realistically – When you then go into your project you should aim for having 20% depoist for both land and construction costs – this is assuming you qualify for finance for the debt long term. If you are reliant on the sales to repay the debt you will need to go via a commercial banking channel – this might require more deposit, fees and a higher rate.
It can also be hard to get an equity partner for a project before knowing what the project is. For example- lots of people get the land and plans etc before finding the investor. This way you have something to bring to the table (ownership or contract to buy the site) however it requires the ability on your part to provide at least some initial outlay of funds.
Bit of a chicken before the egg scenario…
Thanks for the advice everyone,
Sorry I didn't reply sooner – just figured out how to subscribe to posts I've made.
Banker, i've done a few figures and if I refinace to 90% I will have enough for 20% deposit for both land and construction, I just didn;t really want to use that if I could help it. What would be the ball park figures if I did go with a "commercial banking channel – this might require more deposit, fees and a higher rate"?
I have a JV partner who is keen for bigger deals 10 hec + subdivision or 12 unit + townhouse, which I'm on the look out for…
I want to get started with a small one my self – old house on 1000 sqm block, subdivide, sell back block, and front house after minor reno.
Hi Dale, if you start with a smaller block you might get through retail e.g. Like a home loan. For example some banks will say contruction of up to 3 properties on one title is fine via the retail channel.
Commercial is a lot more complex; largly case by case basis.
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