All,
I have an investment on the cards and need assistance with the financing of the property
The Background:It is a bombed out shell of a property, in a basement of a cool heritage building in Sydney, it is zoned mixed use and I plan to turn it into a serviced office scenario. The woman selling needs to sell quickly as she can no longer afford to keep the property, and in its current condition there is no way to rent out as either residential or commercial.
The Problem: The asking price is around $600k, for which the bank will not lend to me yet, however once the property is completed it will have an estimated value of $1.1m, which would be well within the banks LVR guidelines. What I need is essentially the $600k for the purchase plus another $100 for renovations for 1 year.
At this stage I am in negotiations to vendor finance the property for the year, meaning that all I may need will be $100k for renos + $20k in closing costs and overdue strata fees, but will still need to find a private investor.
The Question:
How do I go about sourcing private investors, I was thinking that a 10% – 15% return on an investment of 1 year would be sufficient to get a good return.
I have been in construction management for the last 5 years, and have done projects like this before, so i am qualified with experience, its just that I am not quite at the level where I could take this project on alone financially.
All your help is appreciated.
CarlHi Carl
There is a Mortgage Broker in Sydney they also do Private finance.. I haven’t had any business dealings with them.
Get in touch with them see if they can help… also let me know the outcome. What I remember the Directors name is Andrew.
Details
Naritas Finance (www.naritas.com.au)All the very best and success.
Regards
FreeThanks for the tip.
I am hoping however to find a private investor not so much a mortgage broker that will offer bridging finance at exorbant costs.
Anyone else have any tips on private investors and where to find them?
Hi Carl
Hate to say that Private Investors and Vendor Financiers are still required to fall under the requirements of the new National Consumer Credit Protection code so using a Private Investor doesnt get you around the serviceability guidelines.
Even on a LVR basis maximum loan a private financier would probably look at would be 70% of valuation / purchase price.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Hi Carl,
Also what is your exit strategy?
What is the end valuation being based on?
What is the security for the investor?I may be able to help depending on these and some other questions?
Thanks,
Trevor
fullyfocussed.wordpress.comIf it’s a company borrower no responsible lending law applies. That said you will need to cap at 70% lvr max and you will struggle with the condition of the property to get the finance IMO. What about say a 30% lend against the as is value with the vendor providing a second mortgage for the 70% + costs that is payable in 1 years time. You might get it at that lvr and use the loan funds from the new 1st mortgagee to develop and then sell. Might be possible if the vendor has no or little secured against the propery currently.
Marty McDonald | Mortgage Experts
http://mortgageexpertsonline.com.au/
Phone MeYour correct Marty, I am looking to see how much money the vendor can leave in the deal, as this will make it more viable. At this stage i am approaching it with a strait property option with a provision for both early access and ability to undertake renovation works, failing that i will reattempt the same thing with a second mortgage carry back where they leave a significant percentage in the deal.
The issue I have is that the agents are keeping me at arms length from the vendor, and filtering all the information coming through for what they consider the best interests of the vendor, a challenge that I have to overcome this week.
Trevor, my exit strategy is that I will complete renovations in the 4th quarter of 2011, fill the complex with tenants then approach the bank to revalue the property taking into account its new use as a commercial office suite (as opposed to it previously being a residential basement apartment). The change in use and significant increase in possible monthly cash flow (from aprox $1,000 to $10,000) will give me ample leverage with the banks to pay out the vendor in full as well as pay out the private investor and any profit to them while still having both significant equity and cash flow spare (enough to cover the 30% LVR).
As for the question of security with the investor I am open to suggestions, as the deal will likely be a form of vendor finance i expect that the security will most likely be in the form of a caveat, which I am happy to be in the investors name if that assists with trust and confidence in the deal.
Why don't you do a JV with the current owner that way you save on stamps? You pay the costs to hold & reno costs and spilt the end result via a percentage.
For me I believe 10% – 15% to be a low return on investment when others are offering 25%+.
Good luck
It sounds very risky- If you dont have the $120k to complete the renovations, what are you going tp do if you can not find tenants or the valuation comes in low? You will be stuck with $700k of debt and no way to pay it back. You need an exit strategy in case things go wrong. Finding tenants, getting it revalued and making a huge profit is not an exit strategy.
I think a private investor will want more than a 15% return on this project, unless you have prior experience in this type of thing (which from the sounds of things you do not).
I dont mean to be a pessimist as we all hate those, just throwing ideas around.
Luke.
carlrsullivan wrote:All, I have an investment on the cards and need assistance with the financing of the property The Background:It is a bombed out shell of a property, in a basement of a cool heritage building in Sydney, it is zoned mixed use and I plan to turn it into a serviced office scenario. The woman selling needs to sell quickly as she can no longer afford to keep the property, and in its current condition there is no way to rent out as either residential or commercial. The Problem: The asking price is around $600k, for which the bank will not lend to me yet, however once the property is completed it will have an estimated value of $1.1m, which would be well within the banks LVR guidelines. What I need is essentially the $600k for the purchase plus another $100 for renovations for 1 year. At this stage I am in negotiations to vendor finance the property for the year, meaning that all I may need will be $100k for renos + $20k in closing costs and overdue strata fees, but will still need to find a private investor. The Question:How do I go about sourcing private investors, I was thinking that a 10% – 15% return on an investment of 1 year would be sufficient to get a good return.
I have been in construction management for the last 5 years, and have done projects like this before, so i am qualified with experience, its just that I am not quite at the level where I could take this project on alone financially.
All your help is appreciated.
CarlPrivate investors dont like dealing with the public directly- your best option is through a broker; and be aware since this is a commercial deal and it’s complex; there will be a broker fee – the average is around 2% of the loan amount – but this will save you time, paper work hassle and confidence.
But just to answer some of your questions: do you have any residential security that has ATLEAST 300k equity? if so i be able to finance it through the big banks for you x-cross and all under residential rate but with a $25,000 cash out max.
But all in all, if you have no residential security and you want high LVR for this deal- it be impossible!!! that’s why they say the rick become richer- because only people “better off” will be able to get finance for this.
Regards
MichaelMick C | Shape Home Loans
http://www.shapehomeloans.com.au/
Email Me | Phone MeSame Banks. Better Rates. Served With a Passion.
You must be logged in to reply to this topic. If you don't have an account, you can register here.
