Co-funding or joint venture for construction loan

Hi All,

I have approached bank initially for construction loan in 2022 and I was assessed that I am able to get loan to build 2 side by side town houses. Builder gave me rough quote of 1.2 million.

went for plans and drawings, got plans approved. Since then construction cost has gone up and to 1.3m.

I am assuming the cost would go upto 1.4m. In 2024, bank says I won’t be able to borrow that much.

so I am looking for any funding solutions. Co funding or joint ventures to fund my project, can anyone suggest?

numbers

to build 1.4 with fixed price contract and time limit will be provided by builder to complete in 14 months.

the location I stay in melbourne east, brand new homes with 4-2-2 is minimum 1.5m with previous sales, by the time construction is completed, 1.6m is fair value.(I could be wrong)

1.4m investment
3.2m value after build completion

Regards

 

What is the market value of the property / land itself and is there a mortgage on it?

 

Market value is 1.3m
There is 740k mortgage

 

Borrowing capacity has changed massively since 2022 due to the rate rises we've had since then.

Have you spoken to a good Mortgage Broker? Just speaking to 1 bank will severely limit your Borrowing Capacity as different lenders have different policies and you may be able to borrow much more from another lender.

Has end rental income been factored into the borrowing calc?

 

I factored staying in rental home and rent out both units as new building generally yields more rental as well, but as you said, interest rate is quite high

 

First step, speak to a decent mortgage broker.
I'd do this before going down any potential joint venture type mess.

 

Is joint venture a mess? If so, I don’t want jump into troubles.

 

It can be yeah, 1 simple example is what happens if you want to keep it but your JV partner want's to sell?
You might not even need a JV anyway, get clarity on that first.

 

Ok let me work on that.

 

Is this residential or commercial?

Your joint venture 'partner' couldn't improve serviceability, usually, without being a part legal owner and if you were to borrow from someone you would be increasing your debt so the JV itself won't help meet the gap.

 

It’s residential property. If JV doesn’t work, what could work?

I have seen some builder who builds builds two and gives 1 to owner and keep 1 to himself, but I am not sure if the builder exists anymore in the market. And I am not sure if it’s co-development or JV.

 

what is the current ownership structure?

 

I've funded a number via Unit Trust Structures, they've all been build and sell developments, not holding for rental income.

Potentially you're confusing a co-ownership & co-borrower style of arrangement with JV?

 

Currently it’s under individuals. You are right, I am not sure which one I need, co-borrowing or co-ownership.
Basically, I want to get funded for building and I would sell one to repay the funder and keep second one for myself to live.

 

Only legal owners can borrow against a property being used as security - with some limited exceptions. So a co-borrower won't work unless you transfer around 25% of the property to the person you want to go on the loan.

A JV is where someone other than the legal owner helps out in someway. It could be a builder who might take less upfront but get a share of some of the proceeds on sale - but the lender will not like this generally.

Then there are private loan agreemnts, but you are taking on more debt so this will generally decrease borrowing capacity.

a gift from a related party is another option.

With all of these you have to consider the stamp duty and CGT consequences as well as any agreement you have with the mortgagee - which may prevent things from happening without their consent.

 

That’s really good explanation. I find it very tough to get into any options unless I could manage to fund it from usual construction loan. And that could take some years and by then my plans will expire.

 

What is the purchase price of the land? Asking because your development cost and estimated sale price are similar but we bought the property for $1.2m so our numbers still don't quite stack up yet
Advice on development numbers