Do banks approve MUD construction loans if more than 80% of the units are pre-sold after development approval?
superAndrew | Property Analyser and Finder Tool
https://property-analyser.com.auWhat is MUD? Multiple Unit Development?
Presales is only one aspect, you will also need to meet other requirements. They will look at experience, history, credit report, valuation etc etc.
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
Hi Terry, yes Multiple Unit Development.
This would be my first development and I already own the land.
It was more a question to find out the importance banks place on presales. Assuming most units are already presold (10% deposit collected) and the numbers stack up would they lend at high LVR’s?
superAndrew | Property Analyser and Finder Tool
https://property-analyser.com.auI recently had a discussion with my bank manager about a similar investment, and it would have been my first as well. I wanted to get a loan for about $2mil to build a bunch of units. The basic information I got was:
– They would loan up to 65% of the final value of the properties.- You need to be able to service the loan at all stages. Since you don’t normally draw down on the entire loan at the start, you needed to be able to show you could pay this.
– The interest rates are higher than standard residential loansAs long as you could do that, they seemed pretty happy with me and didn’t really care too much about pre-purchasing. The pre-purchasing allows you to secure / pay the loan to the bank as you get paid. I was also able to put in $500k in cash, and my servicability was pretty good anyway, so I was hoping to sell very few of the units.
I found talking to an actual bank manager to be pretty handy to start getting some numbers for planning purposes.
The New Guy, hate to say there is a big difference talking to an actual Bank Manager and a Credit manager.
One talks a lot and does nothing the other doesn’t talk at all but decides your future.
65% is possible of GR but remember it is net of GST.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Be aware that valuation is not always taken as for buy and hold purchase.
It is important to understand that most lenders would reduce valuation from MARKET VALUE to ALL IN ONE LINE VALUE, resulting in APPROXIMATELY 15% discount. It means that approved LVR of, lets say, 65%, is calculated fron the lower base. It is possible to find the lender who would look at full market valuation, but they are minority. And is also assessed on case by case bases, depending on: developers experience, equity, servicability etc.
Do banks approve MUD construction loans if more than 80% of the units are pre-sold after development approval?
Presale requirements are generally quoted as a percentage of debt coverage, so 80% of units will likely be a lot more than 100% of debt. Most lenders want 100% debt coverage, but you can get away with less with some. Meeting a presale requirement does not mean you will definitely get an approval.
Be aware that valuation is not always taken as for buy and hold purchase.
It is important to understand that most lenders would reduce valuation from MARKET VALUE to ALL IN ONE LINE VALUE, resulting in APPROXIMATELY 15% discount. It means that approved LVR of, lets say, 65%, is calculated fron the lower base. It is possible to find the lender who would look at full market valuation, but they are minority. And is also assessed on case by case bases, depending on: developers experience, equity, servicability etc.
In one line discounts are not generally a issue for commercial loans, where it is applied the discount is generally 20%. CBA are the most aggressive in applying in one line discounts, but even with them you can have it waived.
Most lenders will want presales – there are a few lenders that will allow you to not have any presales however in those cases you would need to be able to service the debt without the use of the proposed rental income of the construction. Therefore servicing would need to be very strong.
TheFinanceShop | Elite Property Finance
http://www.elitepropertyfinance.com
Email Me | Phone MeResidential and Commercial Brokerage
Most lenders will want presales – there are a few lenders that will allow you to not have any presales however in those cases you would need to be able to service the debt without the use of the proposed rental income of the construction. Therefore servicing would need to be very strong.
This is true with regard o the major lenders, to get something outside of this criteria you have to go to the non banks, of which there are relatively few active in this area of lending, and be prepared to pay a lot more money in terms of fees and interest rates.
I had 2 recent scenarios where the client wanted to hold onto all the properties so they obviously didn’t want the presale condition – we wrote both loans with Bankwest and found them to be very pragmatic.
Out of the majors CBA and NAB are the only ones that will consider no presales. ANZ won’t even want to hear about it and Westpac well lets not even go there.
TheFinanceShop | Elite Property Finance
http://www.elitepropertyfinance.com
Email Me | Phone MeResidential and Commercial Brokerage
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