Construction loan increase

Lucky you .... talked to my broker... he has clients soiling themselves he can't sleep. ...he has people refinancing their entire portfolios. Lets see.... interesting time and possibly very exciting....

 

What kind of issues are they having?

 

Who knows..but good luck

 

Thanks mate! Lol I’ll need it!

 

That's an ouch on the provisional sums exceeding their allowances by so much! Out of curiosity do you know what made them be so wrong? Do you have any other provisional sums in the project that could also be wrong?
Most developers have a 10% contingency bucket for stuff like that.
If you have other properties with equity you may need to do a LOC or equity release on those to raise the funds. Keep it all very clean and keep good records of these loans for your tax returns.

 

They were denial till this month about interest rates. Will post numbers lately.... but jist of the issue is:

1. Client has 5.6m in properties.
2. Borrowings about $4m
3. Currently has a few fixed at 1.99%...but coming off later this year and next year. A lot of his IO rates coming off. He did have a 700k extra borrowing capavity.
4. If IR goes to 5.5%...he won't be able to borrow more..and if all his loans goes P&I he is stuffed.

 

I ran all my numbers with contingency in place but issues began with bwest policy having a valuation cap of 1.5 million and only allowing an 80% lend. Actual sale prices indicate values 2.2 million. So once it’s completed there’s no issue.

Increases in PS have been a combination of genuine material increases, low initial PS and builder incompetence. Fun mix which I bare the brunt of.

 

Such a high LVR. I shake my head when I hear stuff like that! I guess the product of buying late in the boom

 

Is the person a high income earner? should be able to service for a bit

If not, how did he get the debt so high.

 

It don't think spectacularly in income about 170k I believe rents about 200k also. Issue is if all at PI then will cost 300k just to service loans. About 7 properties. Assuming 55k in costs. Then they are in trouble. Lots of these at the moment. Another one with $3m with 4.7m portfolio.

Let the Squid games begin

 

ouch… if that’s before tax and single income he could be in trouble. Should have cashed in during 2021 and lowered the overall LVR.

That income yield seemed good but a few vacancies or repairs….

I wonder how many of these type of guys are there out there.

 

Simple reason for this. 2nd mortgage provides quickest option with most certainty re: access to funds. No funds, can’t complete build. Depending on what else you have going on, 2nd mortgage also keeps funding for that project tied to that security rather than using equity from elsewhere.

If you have equity in a separate property, are ok to use this, can service & be within DTI caps then should consider equity release. Assume you went with Bwest for DTI flexibility.

 

I wonder if the broker meant an additional mortgage ( against another security - in other words , a cash out ) rather than a second mortgage , given their specific reference to another property. It may be a question of semantics / wrong terminology.

 

Nope definitely second mortgage as the increased rate was discussed followed by something to the effect of “it’s the cost of doing business”.
Mind you this conversation was had when the required funds was only about 30k. The recommendation might change now that more cash is required.

 

A few on here might have the same issues part

A lot more people than you think.

Lots on here also.... NFI they are

 

Odd... `i dont see any reason for that if you can access cash out elsewhere.