How much is needed for finance?

This is more for education to know what is needed to develop.

House and land i'm looking at is $1.6m - 4000m2
For this site i would be looking at 15-16 Townhouses - sale price 550k each
Construction cost is approx 300k each
Assuming costs 500k it should be quite profitable

How would a beginner finance something like this - or they don't ?

 

That would cost you around $7mil for that with end value being $8.2mil before GST is taken into account. You probably wouldn't attempt it. You might make a loss

 

I doubt a bank would allow someone with no experience to borrow that kind of money but theoretically if it's worth 15 x $550k (assuming the bank agrees with that too!) then the end value is $8.2m. A commercial loan will probably lend approx 70% of that = $5.77m) which is less than your costs (approx $6.6m costs above but there is more and GST minused off the lend so probably more like $5m lend) so you would need to fund/deposit at least 900k-1.6m

Then of course the bank would require presales to reduce their risk so they'd probably want at least half of the townhouses presold before they'd be willing to fund the construction so you'll be paying for everything including holding costs until you meet the funding point which can take months if people don't like buying off the plan in your area.

Fingers crossed I used my arithmetic correctly as I did a lot in my head. But you get the idea. It take a lot of money to get into a development that size.

 

What is the motivation going down this path especially when you know that you are a beginner?

 

Have you thought of buying it....getting the approval for Townhouses and then on selling them. You could if each T/H is worth 550k each and you can put sixteen on them that is a total of 8.8m. An experienced builder may able to build/other costs for 275k each which is 4.4m. Plus say a profit of 1.6m. That is 6m. Minus 8.8m...you could probably re-sell the approved plan site for 2.8m....less risk and still very profitable...without the headaches and risks of development finance. Somethunk to think about...

 

Depends on the experience and size of development. For example I have couple I am doing and the risk is not huge simple one block of land .. one house builds. Land bought for 159k... House build $220k... Stamps legals 5k due to discount given by Vic govt. End value about $690k. So profit about $300k. Doing a couple of these now.

 

Very rough, I'd say you'd get approx a $4.5m loan on it (we generally just take about half the GRV as a quick guide, back of the envelope calc end up around here between 0.45-0.6). Interest is capitalised, GST is taken off, etc...all bringing to loan amount down.

Can seek alternative and very expensive funding models to stretch this out further. It will likely need to be with a non-bank/private space, may be tricky getting bigger lenders involved with no experience. There's plenty of money in this space, rates are variable. Likely budget around 7-8% total interest, for 15 months or so into your feasibility.

In terms of total cost: $1.6 land, $700-900k interest/planning/sales, $4m build...$6.5mill total.

Will say roughly 2m required to get it done.

Project numbers aren't bad at very high level.

 

Does the zoning even allow for something like that to be developed there?
If so I'm surprised no experienced developer has snapped it up already.
Finance would be Commercial, larger deposit required and previous development experience counts (limiting your lender options by having none)
Pre-sales of more than 50% of the townhouses would likely be required.

Alternative is private lending, I would strongly advise you don't use it for this kind of deal, you can very easily lose your profit margin or the property to the private funding sharks out there.

Have you done your own feasibility study ?

 

It will cost you morethan $ 300K each... Construction price has gone up significantly and construction time has increased. I think you will lose money in this project if you doing it for the first time. It is too big for a new developer or 1st-time developer.

Approval of 15 Townhouses in any NSW Council will take at least 12-15months time (preparation. pre-lodgement, lodgement, further information etc). Development this scale also required further services (easement, relocation of the power pole, New electrical DP, Council contribution,contribution etc). DA process only will cost over $ 100,000 (DA fees, Arch fees, arborist, stormwater drawings, access consultant, landscaping plans, OSD, Flood report and more).

GST will be payable and it will eat away your profit.

Most lenders won't give your loan if you have not done similar projects before and the interest rate is over 6%.

No guaranty that you will get approval for 15 TH. Council may want you retain some trees or not allowed you to build near creek/flood zone, or your development is too bulky and not meet the DCP criteria. You will certainly dont have CC until August 2023...

 

Yes if you are not experienced...but if you leave it for say 12 months (possibly that long to get approval and get on site) cost pressures may have eased.

Is it just me...every Tom and Harry thinks they can be a developer...good way to go bankrupt! Keep it simples and keeping smilin'

 

What if Council will not approve 15 TH?
How much money you have for contingency?
What if you have to obtain finance for the non-banking lender?
How you will achieve 50-60% pre-sale requirements if the market is down after 12-18 months?
As @sash mentioned above it is not for everyone.

 

If you owned the land outright and wanted 60% of the cost to build they would probably refuse without experience AND a % of pre-committed sales. And you will need to fund GST yourself. You need pretty fine and detailed costing of the whole thing on top. eg GST, cashflows, contingencies etc And then the chicken and egg issue arises. What buyer will want to buy a unseen dev from a first timer ? Agents will be skeptical. And a decent buffer is essentia;l. Any developer will tell stories of the issues they encounter. The lender will also require a QS report based on the plans to validate the build cost. They wont pay what your contract is. Just getting council approval and design etc could be $200K depending on site. Of course they will take a first mortgage over the land and wont allow any other lender a second. The costs to strata it alone wll be hefty let alone all the common area works eg fencing, driveways, drainage, waste areas, vistor areas and so on. XX disabled spaces and more. Each t/house needs to cater to disabled accecss too.

Developer finance is a specialised product and a experienced broker is very important.

Shahin Afarin, Richard Morgan are two I have done developer workshops with. Both on PC...(and others)
Shahin : 0420 987 683
Richard : 0411 282 606
and both have done devs themself.

 

If it was easy, everyone would be doing it, many try and fail.