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Development Finance Enquiry

Discussion in 'Property Finance' started by nvested, 15th Jun, 2016.

  1. nvested

    nvested New Member

    Joined:
    15th Jun, 2016
    Posts:
    2
    Location:
    Queensland
    Hi All,

    We are currently in the process of acquiring land that can accommodate 4 townhouses. It is vacant land. The value of the land is $440k.

    Our plan is to purchase the land under a family trust account, apply for a DA - 4 townhouses, then we have three options:
    a) sell the land with DA and potentially realize a $170k profit or
    b) sell two townhouses off the plan and then apply for further construction finance or
    c) apply for construction finance for the 4 townhouses, sell all 4 and potentially realize a profit of $400k

    Our equity is fine, but limited cash flow and serviceability.
    Cost of land 440k
    Cost of DA application 40k
    480k

    Therefore, initial loan required to purchase land 480k

    If construction goes ahead costs are:
    Buildings 800k
    Infrastructure charges 120k
    Total cost of project 920k + 440k (land) 1360k

    Total sales: 4 x 440k 1760k
    29% profit = 400k

    Questions for Property Chat gurus:
    a) What finance options do we have to secure the land?
    b) What finance options do we have for a construction loan?
    c) Which of the above three options would be the most feasible?
     
  2. MTR

    MTR Well-Known Member Premium Member

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    Location:
    Perth, Melbourne, USA
    holding costs? interest during build period?
     
  3. Shahin_Afarin

    Shahin_Afarin Residential and Commercial Broker Business Member

    Joined:
    18th Jun, 2015
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    Location:
    Sydney
    Only a select number of lenders will allow for 4 unit construction under residential lending wit the "best" lender being RAMS but valuation will play a part in this.

    The valuation is going to be in one line - so what this means is say each dwelling is worth $500,000 so thats a total value of $2mil. The valuer is going to give you 2 valuations; one is "as id complete" value and the other being as is "in one line" value. So the as if complete value is going to be $2mil and the in one line value is going to be much less say approximately $1.6mil so the lender is going to lend the in one line value. You need to factor this in your calculations.

    I would recommend highly that you do it under residential lending rather commercial lending. Commercial lending is going to eat into your margins for what you are doing.

    How are you coming up with the soft costs?
     
    MTR likes this.
  4. catsteve

    catsteve Active Member

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    22nd Jun, 2015
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    Location:
    Perth, WA
    GST.
     
    Dazedmw likes this.
  5. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    18th Jun, 2015
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    Location:
    Perth WA
    Unless you have additional security or a guarantor, you will only be able to borrow a percentage of the land cost, which varies between lender. You will not be able to borrow $480k secured only by land worth $440k.
     
  6. wombat777

    wombat777 Well-Known Member Premium Member

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    @nvested i'm interested in the rationale for the figure of $170k profit for just selling with the DA.
     
  7. MTR

    MTR Well-Known Member Premium Member

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    Location:
    Perth, Melbourne, USA
    se
    what is more important is if there is a market for this and whether it stacks up.
    Many talk about DA and on selling but do not understand the logic behind it .....which is basically everyone needs to make money. They don't know how to work the numbers to succeed with this strategy
     
  8. Leo2413

    Leo2413 Well-Known Member Premium Member

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    Location:
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    or

    Or you wait for a new young developer to come along and buy your DA sold on the idea he's going to make a bundle since he's nabbed a DA approved gem.
     
  9. albanga

    albanga Well-Known Member

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    Location:
    Melbourne
    I would personally like to meet the real estate agent who sells for 0% commission and also fronts the staging and advertising costs. Probably needs to revisit the business strategy.

    Oh and the accountant who lets you keep the profit :p