How to finance soft costs

Hi

I have some vacant land valued at 250k and I'm at 80% LVR with no further funds to contribute.

I want to subdivide in to three titles to manufacturer some equity to then build.
(I've been through this before and spoken to council, all good there)

I need $80k for the subdivision costs including surveyor, conveyancer, S94, DA, LPI and civil services etc

I will end up with 3 blocks with conservative market values at $120k, $130k and $180k. Total $430k.

I will then be at 65% LVR with my current borrow + subdivision cost against the end value.

I could do it in stages - $40k to spend and wind up with two blocks values at $180k and $160k.
Then another $40k to have three blocks at $120k, $130k and $180k,

What have other people done in similar positions to fund subdivision costs?

Dip into LMI and combine with a personal loan?
Personal loan?
Is there some construction finance type product to assist?
Loan shark?

Appreciate ideas...

 

When I did mine I used existing equity from other houses. If you dont have this then perhaps either do it in stages or hang onto it for a bit longer til you do?

My numbers form memory were
- bought $100k block at 88% LVR = $88K loan
- $22k to subdivide it in half (Came from equity in another house)
- 2 newly created blocks worth $90K each
- Use equity in those to fund towards building on them

@Corey Batt set this all up for me, so might be able to advise further.

 

The options in that scenario are either securing the debt against another property/the current property OR unsecured - no other easy way out.

The balance then comes down to working out what is the most cost effective route to getting the deal done. I generally suggest to clients who are buying sites for development that they have the funds for the next stage already available, so they don't sit on the site with no way to move forward.

 

Thanks for the replies.

My plan was/is to push into LMI and build with fixed price contract one small dwelling and go from there.

Now I'm thinking I should give a bit further thought to trying to fund at least one subdivision first to better my equity position.

I think I'll look into a $40,000 unsecured personal loan and then refinance in a couple of months when I have two titles.

Any input with that idea?

 

Getting a pl for that amount might be just as hard as paying LMI. Might save a little money, but it'll hit your cashflow hard.

I'd model lmi for the soft costs and then using lmi on the construction as well. Do the subdivision and build all at once.

Go early, go hard. In for a penny, in for a pound.

 

80K for three blocks ?? I believe you will be underfunded. I just assisted a new client and it was $400K over the $250K budget someone else dreamt up. She had three committed $1.2m sales ($3.6m) with loads of profit and no lender would touch it. Lenders hate this type of uncertain venture and the costs easily balloon with councils making their rules and adding costs on top of issues like sewers, rock and other factors. One shark offered finance for $40K and at 14%. We found a angel to finance it at 10% (unlrealated SMSF short term loan )

I dont understand how the build gets funded if the land cant be done.

 

Go into a JV with someone. They finance the costs, you contribute the land.

 

I have recently gone through the process with the same council so am confident of my costs. There is no road construction to be done. Power is out the front already etc. it's just boundaries, titles, S94 etc. And I'm nowhere near approaching minimum lot sizes, the blocks are regular shaped etc.

I think if I can get $40k personal loan to cover it, I will.

I can happily cover the repayments and will be pushing through the process quickly with a view to have 2 titles and the $40k loan closed out in <3 months. Then I'll be in a good equity position to obtain construction finance for a single dwelling.

If that isn't option I will go back to the original plan...
Dip into LMI to 88% LVR against land value and contract price and build a dwelling.

Hoping to avoid a JV - would prefer a loan shark. I think it would be best to maintain total ownership at (almost) all costs. But I might be young and greedy?

Thanks for the input

 

What is the long term plan ?
Subdivide, build on all three lots, sell/hold ?

Sounds like having a % partner to fund costs could enable this project to be completted in a timely manner.

 

Strategy is to build the first one as ppor and sell as early as I can while minimising CGT, then build and hold with depreciation benefits and tap into the equity.

Two of the lots are suitable for duplexes, the other lot is suitable for 6 townhouses.

This is in a small town where the demand perhaps suits me drip feeding the market as opposed to getting in and out quickly.

Might not be the quickest way to make a buck but I'm happy to compromise as I live here and know the local market well and can stay on top of building progress.

 

How does one go about finding clients to be an angel investor for them? Was there any collateral in the deal?

 

Did you consult an accountant?

Believe also GST will be payable?

 

Haven't post budget. Any changes You think I should be aware of?