Hi all, this is my first post. I am a builder and am looking to get into development for myself rather than developing for clients. I have a question regarding borrowing. Here goes: Should I finance a development without borrowing and pretty much use up all of my capital? or invest a smaller amount and use the banks money to complete the development. I am not a fan of borrowing unless I really need to. And if i don’t have the bank repayments to think about, it feels like there is less pressure if for some reason I can’t sell on completion.
i would really appreciate you feedback.
Dear Jonesey, you need to do some crucial calculations. It is often more profitable to use borrowed funds for construction or property purchase. But all depends on the individual case – terms, Bank rates and so on. Each case is different.
Amilia
Email MeJonesey it all boils down to what you can do with the cash funds.
I would strongly suggest you look at taking some finance on the deal even at development rates.
Doing so will give you some flexibility and choice by keeping some cash funds up your sleeve.
Cheers
Yours in Finance
0-40 Properties in a decade. Ask me how.Richard Taylor | Australia's leading private lender
Thanks for your input guys
I invest with a developer who uses private investment capital to fund a large part of his developments. I believe he came up with the idea because when he started up banks wanted a maximum LVR of 50%, so he offers private investors a fixed rate of return on their money. It means he’s sharing the profits but it mitigates holding costs such as interest on loans, while freeing up his own capital to secure the next development site. It’s obviously taken time though to build up an investor pool.
cheers
PeteThink about tax and asset protection. You should never develop with your own money because of the risks involved. You could consider setting up 2 separate structures with A lending to B with A taking a first mortgage over property owned by B. This would allow you to avoid banks but also provide good asset protection if things go wrong. It may also provide tax advantages on several fronts.
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
thanks Terry, are you sayiing for me (A) to lend my partner (B) allowing her to purchase the developments site?
thanks Terry, are you sayiing for me (A) to lend my partner (B) allowing her to purchase the developments site?
That is one way to do it, but it may or may not be a good idea – you need some legal advice.
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
I have been advised to open a building company and a development company, and to be the director of both with my partner (wife). The development company gets the finance and employs the building company to carry out the construction.
That is one way to do it, but it may or may not be a good idea – you need some legal advice.
That is one way to do it, but it may or may not be a good idea – you need some legal advice.
If the development fails you will both go down with the company.
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
Could you briefly explain how to limit the risk please terry.
Could you briefly explain how to limit the risk please terry.
A very simple strategy is to have just 1 director and make sure the non director provides no personal guarantees. This may not always work due to servicing, but it would still be a good idea not to have 2 directors, but allow the other non director to give a guarantee. the non director would be liable to the bank, but not to others such as trade creditors, builders, ato 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
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