Development finance

Discussion in 'Loans & Mortgage Brokers' started by shootingfish, 17th Aug, 2017.

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  1. shootingfish

    shootingfish Well-Known Member

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    Hi guys,

    We've been doing small developments for a while, ranging from commercial warehouses to 2 townhouse lots.

    We run mortar and brick businesses and I am wanting to go into property full time as I'm a bit over retail and the end consumer.

    I just want to build for ourselves and sell.

    I know when it comes to commercial financing and more than 2 townhouses generally AND a proven track record based on what I have been told from my current RMs is:

    Serviceability is not such an issue (though will still need to address) but more so the risk and whether we can sell more than 50-60% beforehand.

    Ideally I want to use existing capital we have and just do two to three concurrent projects within a span of two years.

    Can anyone help in this respect? I see friends who are doing 6-8 medium size projects concurrently but I have a feeling they have private financial backing.
     
  2. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    A good broker who knows devs will be your friend. 2 T/h wont need commercial finance (depends on lender some its 3 and others 4 etc) and will be easier under resi lending guidelines. Rolling the profits into the next dev also needs to allow for the GST and tax so you dont tie it all up when the tax has to be paid.

    The developer toolkit attached contains some info on some of the key tax issues and a brief guide to finance. The broker who produced that brief summary is one I recommend. He is a VERY experienced developer himself.
     

    Attached Files:

  3. shootingfish

    shootingfish Well-Known Member

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    I'm aware of GST and tax on developments. My goal is to find a way to do developments based more on capital and future sales rather than serviceability alone.
     
  4. Terry_w

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

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    Ideally borrow against other properties so you can do the development without needing to mortgage the land - other than as a related party loan strategy
     
  5. shootingfish

    shootingfish Well-Known Member

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    Sorry can you elaborate? Do you mean let's say:

    My PPR, loan $1m, value $2m, equity $1m. Use $1m equity to borrow against development purchase?
     
  6. Terry_w

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

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    Prob $800k loan in this case
     
  7. Terry_w

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

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    Sorry $600k at 80%
     
  8. shootingfish

    shootingfish Well-Known Member

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    Lost you there.
     
  9. Terry_w

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

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    80% x $2mil = $1.6mil.
    Less existing loan of $1mil
    = $600,000
     
  10. shootingfish

    shootingfish Well-Known Member

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    Ah k.

    $600000 spare to put into development purchase via cross colaterlisation - both properties would still be secured against the loan though so not sure what you mean by not having to mortgage the land? (Given that our development land is normally $1-1.5m, I'm assuming you were thinking the development land would be $600k.)

    To be clear this is my plan:
    I would buy PPR - increase equity value via new build on the PPR. Then use that equity to put towards development purchase (as security) - our developments are in trust names/company names.

    Not sure about what you are saying about related party loan strategy - but I assume it is something like the above strategy.
     
  11. Terry_w

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

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    That would be done avoiding cross collateralising securities. This is even more important with developments with the greater risk.

    If your equity is not enough you may have to mortgage the development land.

    A related party loan is one where entity A lends money to entity B. This can be backed up with a mortgage for additional security.