Development Finance Guide

Discussion in 'Loans & Mortgage Brokers' started by Shahin_Afarin, 21st Jun, 2015.

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  1. Shahin_Afarin

    Shahin_Afarin Residential and Commercial Broker Business Member

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    Only lenders that will do 4 units at varying LVR's and conditions are RAMS, IMB, Bankwest, St George and Heritage.

    The superior of the lenders doing 4 units is RAMS.

    If you are considering 3 units then you can add a few lenders to the above list - namely NAB, Advantedge and BoQ.
     
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  2. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    CBA too.
     
  3. Shahin_Afarin

    Shahin_Afarin Residential and Commercial Broker Business Member

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    We're talking construction not established.
     
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  4. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Oh, Gotcha
     
  5. Big Daddy

    Big Daddy Well-Known Member

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    Any banks lending up to 88%lvr for trusts with a corp trustee?
     
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  6. klabat

    klabat Well-Known Member

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    Is there lenders for 5 dwellings development in resi space?
     
  7. Shahin_Afarin

    Shahin_Afarin Residential and Commercial Broker Business Member

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    Max 2 units - LMI is not going to touch anything above 2 units unless of course you are a medico.
     
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  8. Shahin_Afarin

    Shahin_Afarin Residential and Commercial Broker Business Member

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    RAMS is the only lender that will consider it at max 70% LVR. Your application will need to be incredibly strong, dual income, limited unsecured liabilities, strong servicing/borrowing capacity, cat 1 property portfolio, etc.
     
  9. Big Daddy

    Big Daddy Well-Known Member

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    So a few lenders will do 88lvr for a dev site (old house on large block) for a company ? Which banks ?

    Additionally which is the goto bank for property investors with dual incomes who want to keep accumulating property at high IO LVRs eg. Good lending polices such as good serviceability calcs, quick turn around times etc
    Thanks
     
  10. Shahin_Afarin

    Shahin_Afarin Residential and Commercial Broker Business Member

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    St George, CBA, NAB and a host of other lenders will do it at 88%. Westpac doesn't do it though.

    So you want high lenders, IO, good lending policies, good servicing and good turn around times? Gee your not asking for much are you?

    If you want to accumulate it pretty a simply strategy - use the more conservative servicing calcs first and then the more generous ones later on. Your answer is very dependent on the following:

    1. What's your income split? Is one applicant on $200,000 and the other on $20,000?
    2. Whats your deductible vs non deductible debt levels?
    3. When you say high LVR's - how high do you want?

    I don't need the answers to the above but your servicing across banks will be different based on the above.

    There are lenders like Liberty who do very high LVR loans (95% base plus LMI capped) but you will have 2 credit enquiries for each submission so you will soon find that your credit file is quickly eroding away. You also want to save this lender for later on in your portfolio.
     
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  11. Vicianpark

    Vicianpark Active Member

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    Hi Shahin,

    How are you doing? we are thinking about doing a development in TAS, about 11 units.

    I assume this will fall in commercial finance cat.

    Just wondering if you could advise who will be the ideal lenders in this space at the moment please?

    thank you so much
     
  12. Shahin_Afarin

    Shahin_Afarin Residential and Commercial Broker Business Member

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    Hi VP,

    11 units is commercial.

    Re lenders - it depends on a number of things.

    They will look at the following:

    1. Presales - all lenders will request presales. There are some lenders that will not require presages such as Bankwest, La Trobe, etc provided that you can service the debt without the use of any proposed rental income.

    2. Experience - commercial lending lending assessment is more pragmatic. In the rest space the credit assessor couldn't care less if this is your first development or your 100th development. Commercial lending is a different beast. You will need to demonstrate to the assessor that you have experience. Lack of experience demonstrates risk and thus you need to rely on other areas of your application to increase the strength of your application. One ways of mitigating this is by using a project manager.

    3. Builder - one of the biggest risks associated with developing is the builder. Not all builders have experience building units, basements, etc. You need to provide the lender with the builder's CV - you essentially need to demonstrate the stability and experience of the builder.

    4. Sponsors - your income plays a big part. For example you have a company with 2 directors (you and Bob) making $5,000,000 income pa. Some lenders will not accept this. So you can't say one lender is better than the other - it depends on your specific circumstances.

    Keep in mind valuations and QS reports - different lenders have different panels of QS and valuers so you need to use the ones from the panel of that lender you are using.
     
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  13. Vicianpark

    Vicianpark Active Member

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    hi
    Hi Shahin,

    Thank you so much for your information, much appreciated.

    sorry for being green, can you please provide a list of lenders who are in the space please?

    Also, this is our first development, we have been selling properties within a financial planning company but never done development ourselves before. So i am guess we will have to use our company income for servicing? and as this is our first development, only pre-sale we will have is the similar complex near this area we are trying to develop (we didn't develop the pre-sale complex though). In addition, being the first development, who will be the best lender please? (La Trobe and Bankwest I assume?). is there any other non-bank lenders out there can do development finance?

    sorry for the multiple questions, and I appreciated your help.

    (have done some google research, it is hard to find a link to sort of teach you about development finance step by step with a good example involved)

    thank you
     
  14. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    You are green!
     
  15. Vicianpark

    Vicianpark Active Member

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    thank you Terry :)
     
  16. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Shahin has worked hard to gain the knowledge of which lenders to use - this is valuable information and his intellectual property.

    It is also simplistic to think he could simply answer a question like 'who is the best lender' as that will entirely depend on the circumstances of the situation.

    Why not make contact and become a client of his?
     
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  17. Vicianpark

    Vicianpark Active Member

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    Thanks Terry, just a newbie here and trying to learn a couple of things but I 100% agree with you.

    Sorry if my questions here offended anyone here.
     
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  18. Shahin_Afarin

    Shahin_Afarin Residential and Commercial Broker Business Member

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    I think you have misunderstood the concept of presales. Presales means that you need to sell a certain number of units usually around 50% (so in your case 5) before the lender can commence paying out the construction loan.

    So before you begin construction you need to sell 5 of them! Depending on servicing the lender may require you to sell all of them.

    Im going to put my lender hat on and say I would have concerns about you being based in Sydney and doing a 11 unit (which is quite big) in Tasmania and this is your first development. I think this is going to be a hard one to get across the line. Hopefully there are other parts of your application (such as the sponsor profiles) which will lift the strength of the application.

    Re lenders - almost any lender that does construction finance (majors, St George, etc) will do this but its far more complicated than "which lender is the best".

    What does your GRV look like? Have you ascertained DA? Have you ascertained CC?
     
  19. Shahin_Afarin

    Shahin_Afarin Residential and Commercial Broker Business Member

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    Just an update on the state of play in the construction loan world.

    Whilst there are no changes in the residential development/construction loan space - there are massive changes in the commercial construction loan space.

    It is now extremely difficult to fund commercial construction/development lending. This means that there are a lot of people with pending DA's that just can't get the finance to build. This may equate to opportunities for people who can source finance or have the ability to build with cash (via traditional methods such as JV's).

    Several lenders are exited the development lending space all together, others such as Bankwest are only lending to existing clients (they were an excellent lender in the no presales space) and Westpac are doing 100% of the loan amount presales.

    I think like any big change it introduces opportunities - I would personally target boutique developments (6-12 dwellings), stay away from highly developed suburbs and low ball a lot of vendors selling due to the inability to finance the build.
     
  20. Shahin_Afarin

    Shahin_Afarin Residential and Commercial Broker Business Member

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    Another update - construction funding is taking a battering and funding is drying up. This should serve as an indicator of what may lie ahead.

    One of the things that lenders have tighten up on is presales requirements.

    At a minimum most lenders require:

    1. Cap on investor sales

    2. Minimum of 10% deposit - they are no longer comfortable with 5% deposits

    3. No more than 10% to foreign investors - this is a big one

    4. All presales must be unconditional in every way

    It will be interesting to see the price gap between new dwellings and existing dwellings in the months ahead.