Finance on splitter blocks/short term developments

Hi all, finally made time to sign up a new account on the new forum - its looking great in here!

Now that I've finished my first subdivision (simple 1 into 2 lots here in Brisbane), I'm looking to run the same scenario again. The problem this time is that once I source the loan, do the subdivision and 6 months later get discharged from the original mortgage, the banks will be onto me and i don't like my chances of doing it a 3rd time.

Are there some of you out there that have used alternate banks (Liberty, low doc loans etc) where they make their money on application fees instead of ongoing interest repayments? Its got to be a win win for the bank and myself and I don't mind paying my fair share but I fear that if i go to one of the majors again, i'm only going to be able to do this a couple of times before I run into trouble to get financing again.

I've asked my mortgage broker but he didn't seem to have a decent answer for me and hence why i'd love it if you guys could share any thoughts you might have. Thank you and have a great weekend!

 

Banks won't be on to you. Just go the normal route. People discharge all the time.

 

Ok thank you for the advice. What about banks that are more lenient when it comes to development intent? For example I've got a contract that's nearly across the line and one of the conditions is 'subject to DA approval'. My guess is that depending on the bank they will switch me to commercial lending?

 

Depends on what the DA is for.

 

IMO... part of the issue that your broker may have is the lender they'd like to use would claw them back on the commission so the net result for them is they do all the work for no return as the banks take back the commissions. (Even if they arent saying that - it is a factor)

There is also a reputational risk they run in that if all they do is deal with lenders on this and all the deals are splitters and then no long term debt then the lenders may wonder why they deal with a broker who doesnt do any long term debt with them (i.e. less revenue for broker and bank)

Side issues to consider would be exit strategy in terms of the splitting and when you are selling each block - i.e. if both go on the same date or if both go on different dates as there will be logistics behind that.

Me I'd be putting in an upfront mandate before I took the deal on.

 

Totally agree on the claw back and that is why ive already agreed to pay a 'claw back fee' to the broker. I don't mind paying for the service especially after i've made the profit and discharged the mortgage. fairs fair. I do agree on the reputational risk though. i hadt thought about that.

 

No residential lender will want to continually do a residential loan for development purposes in saying that we have done 101 deals like you describe with a couple of specialist lenders.

All in all it is a matter of presentation.

A simple 1 into 2 lots is straight forward and doing a lot of this in Brisbane at the moment.

Cheers


Richard

 

Some banks do get a bit upset if you go and demo a property they have security over so best to check with Broker if they need any alert etc.

This happened to me a while back I think with CBA, they were pretty peeved about the fact we had just gone and done it, it may not matter to all banks, just check. That may also indicate to them what you are doing if it is repeated.

 

No issues with what you are proposing - I develop for myself and have done so using a particular lender and have had no issues. I have also had customers doing the same.

Brokers are generally reluctant to do residential development due to the clawbacks in place unless the broker charges a clawback fee.

 

I would be more concerned with the tax implications than lenders. Do you fully understand that aspect of it? If not then Terry or Paul always make great posts regarding this kind of stuff.