Development loan for luxury build

Hi guys,

I'm seeking some advice on funding of a luxury developlment.

The development will be that of a single luxury home in high end area.

Land cost is 1 - 1.5m.
Build cost will be 800-1m.

Total build will be circa 2 - 2.5m

End value will be 3 - 4m.

I am seeking some advice on here in relation to funding.

How much of the 2 - 2.5m would I need in capital usually?

I imagine it would be best if I own the land outright and fund the build part only?

I have a number of assets I wish to liquidate to fund this and are seeking advice on now much I need (30%, 50%??)

Cheers!!

-Zyzz

 

Depending on a few things but you should be able to get it done with 12% plus stamps and buying costs. But ideally, 20% will make life easier and give you more options and better rates. No need to own the land first.

 

Is it going to be a fixed priced contract ?

Ideally 20% deposit, some banks might require more as it might fall into luxury property category.

 

If you already own the place, then the land cost doesn't matter so much.

If its a single build, it'll likely be based of what the home is roughly worth (perhaps some level of discounting as its not built yet). Say 3m. If your borrowing power (income) is strong, then you could likely borrow around $2.4m, i.e. 80% of this. This will essentially fund the land + construction at your rough figures. Getting loans above this may be possible, but tricky. If your medico or have access to LMI waivers, getting access to a bit more is possible.

Without income/serviceability though, getting access to this type of lending will be much trickier.

 

Is this a GRV loan without me needing to reach serviceability?

It would be fixed price yes

I dont own the land, i need to buy it. I probably should have clarified, I am streched with servicability at this point. Is it possible to finance on Gross realised value only?

 

No it's not - not under normal resi terms, anyways. If you have a history of successful developments, you might be able to access private funding but it's short term and expensive. It's a good solution when you're looking to sell the project but not for something you want to hold.

 

Thanks Jess, Im seeking a development style loan. Im not concerned about the higher rate as it is for a short period. Do you general need higher deposits for a GRV development and if so what percentages?

 

Can't tell you off the top of my head - I haven't done one in ages.

 

End value of $4M would fit under normal policy at 80% without luxury classification/restrictions for many lenders.

However this one however sounds out of scope for residential finance as Jess has indicated... LVR% sounds like it'll be fine but bit of a minefield navigating the non-coded development funding space.

 

Do you have any other unencumbered property to offer as additional collateral?
LVR's on those private lends for development are around 60%, rates are high, and there are plenty of sharks in the water.

 

I have 5 properties but they all have mortgages.

My total portfolio is valued at circa 3 million @ 50% LVR.

 

You would need to ensure the land is bought in a company / trust name if you wish to go down the development loan / GRV route. Personal name would be caught under responsible lending laws meaning serviceability has to come into play even if intention is to develop and sell.

Used to be max loan roughly 80-90%% of hard costs (land and construction) and 65% of GRV but I haven't looked into this for a long time. I have an ex colleague who specialises in brokering private dev deals if you want I could pass on his details if you email me.

 

Would have thought you could potentially apply for a normal resi loan for 80% of purchase price (using rental income from the purchased site) to help with servicing. And then once CDC/DA approved you could apply for a construction loan (and bank may be able to consider the valuation and rental) from the luxury house as if it was built.

I have recently done a similar structure for a duplex development I am working on so not sure if this would apply to a house as well. Brokers would provide more further insight on that.

 

If the site being purchased is a vacant block of land, you can't use rental income for serviceability because there is none, it's a vacant block of land. (not an issue if buying the block with cash) If it has an existing dwelling on it you can but doesn't seem to be the case for OP.
You can use end value (as if complete valuation) and the estimated rental income for a construction loan for houses yes, assuming it's for investment purposes.
However, OP has stated they cannot afford to borrow any more funds via standard resi lending due to serviceability reasons, even including projected rental income from the property, hence alternative options being discussed in this thread.

 

Ok thanks for clarifying that. Makes sense - I took that term "land cost" loosely figuring it didn't actually mean vacant land. But yep if vacant land then that changes things.

I don't know that projected rental income from the as if completed valuation has been factored in as that should surely provide some uplift in serviceability even if it is currently maxed (on existing terms).

 

Unlikely to be enough to assist with the level of funding required due to the way existing debts are treated in lender servicing calcs, even with negative gearing applied to the new debt, rental income is shaded and capped. Would need to run the numbers to be sure, often people think "the rent covers the loan repayments" but that's not how it works out on the servicing calculators when bank policy applies.

 

These are good numbers and if accurate you could probably do a JV.
And if they are accurate the question is is it too good to be true and "where's the catch?"

ATM percentages don't mean much and it 's all about serviceability.
You may try private lending and I'd suggest asking your accountant.

 

The property will probably have a house already on it. Its an established area.

 

No catch, I have about 15 example property's from the area where people have already done what I wish to.

 

Have you had a Broker run the numbers to confirm your serviceability/borrowing capacity for this deal?
I assumed you had, but now I'm wondering how you determined you're stretched for servicing?