Development Finance Question

Hi, I'd like some advice about the financing of a duplex development I'm kicking off in the new year..

My situation is as follows: I'm a self employed builder who has bought the block on which the duplex will be built. The DA and CC have been approved and all contributions and Insurances have been paid. So the site is pretty much ready to go. I also have $130 000 or so in cash which will be used to help fund construction of the duplex.

My other main asset is a unit I own which is currently for sale. Once that unit sells I will have enough to fund the full construction cost of the duplex. The problem is until that unit sells I will not have enough to cover construction costs so I'll need a loan.

My assets total about 700k and i have a 270K line of credit secured with those assets. My bank is not willing to increase my line of credit as I don't show enough income ( my accountants claim as much as they can to minimise my tax) They are also unwilling to re value the duplex at lock up stage or take into account potential rental income once it's built ( they said they will value the duplex block at land value only)

The other thing is have managed to sell both of the units in the duplex off of the plan and the deposits have been paid and the cooling off period has expired ect.. The bank said they do not take this into account either. This seems pretty unreasonable to me so I'd like to know if anyone knows of a good lender for self employed types such as myself?

I have never missed a payment or defaulted on any loans so along with two signed contracts I would think I would be considered a decent prospect for a loan. Any advice would be appreciated..

 

Most lenders will be able to take the the proposed rental income if you are doing this via residential lending so you need to change lenders.

Re income - you can't have your cake and eat it too. You need to show a higher income. In the meantime you could use a lo doc product but LVR is 80%.

Not sure if you are doing an owner build but if you have a licence and a fixed building contract then you can do an owner build even at 80% with them.

 

Any recommendations for low doc products Shahin?

With the income, sometimes payment for work which is performed one year is not received until the next year so you can show not much one year and have a big increase the next year.. I will definitey show more income this year but that won't help right now.

The job is classified as an owner build I think even though I am a licenced builder..

 

Rams are pretty good in this space. Low doc owner build and duplex. Rates aren't too bad. Svr variable bit of a premium for fixed.

 

Thanks for that Tobe. I'll have a look at what they have to offer. The rate isn't such a big deal because I would only need the money for a short space of time.

 

Don't tell them that. And don't show them the pre sales either. In fact, get shain or another broker from here to help you with rams instead of approaching them directly.

 

Shahin#

 

Look for mezzanine finance or private lender. It can be a great way to source funding.

Normally, mezzanine financier/private lender are only looking at your asset and debt, ie LVR.
These type of loans are not governed by NCCP, which means it is not a coded loan. ie lender can pretty much do whatever they want in term of interest, lending requirement....etc.

Some of them provide short term lending from 3 months to 24 month lend and the interest can be high or very high. ( from 10 % per year to 3 % per month caveat loan).

However, do really careful if you decide to source the fund from alternative lenders. Get a good solicitor who specialising in mortgage law, on your side, when you are dealing with mezzanine finance/private lender.

Best way to find this type of lenders, ask a solicitor, accountant or broker normally, they will have access to those kind of funding from their resources. Also, you can search asset financing, mezzanine finance or private lending on the internet.

 

What is the reason not to inform them of the pre sales Toby if you don't mind me asking?

I thought it might help but I'm not really up to date on how they process the applications for these sorts of loans..

 

Thanks Taylor, I'll have a look into that. Is there another reason to be careful when dealing with these types of lenders besides the higher interest rates? Are there large entry and exit fees or something like that?

 

Because it's residential lending. A 30 year term at normal interest rates. If you tell them about the pre sales and short term funding they will send you to a mezzanine funder as above.

In practice you might be able to secure the funds against another property and roll it over into the next project instead of finishing the mortgage at completion.

 

Most of borrowers looking for the alternative lending because they can't source the funding in the mainstream lender or within the regulated loan area.

The availability of the fund is the main problem not the price of the fund. Plus it's unregulated area, Hence, lender can charge whatever they want.

Also, it is unregulated area, some unethical lenders are actually not a "really lender". They are possibly looking for taking over your entire asset.

 

That would be the best way to go for me as I have another similar project to go on with straight after.

 

Ok, Thanks Taylor. It might be best to try a few low doc options first before I headed down that road.