JV Finance question

Hi Guys,

I have JV Theoretical here

Bob has a duplex potential home worth 800k

Steve is a developer.

Steve approaches Bob & offers to build him a brand new duplex that would be worth the same as his current home if not more, but would be Bigger, brand new, beautiful & shiny.

Only catch it Steve would want to retain the 2nd duplex for himself.

If Bob was happy & wanted to go ahead, how would Developer Steve obtain finance considering he doesn't have any security for the bank in Bobs property?? would it require a bigger cash deposit to fund the build??

just thinking out loud here .

Looking forward to your responses

 

The lender is only going to lend the entities that are on title (with the exception of spousal/defacto relationship).

So in this case Bob will need to borrow the funds himself.

Bob may need to borrow the funds himself to do the construction.

Speak to a solicitor and see if you can do Binding Financial Agreement (BFA).

 

Hey mate,

so im thinking it would be very hard for steve approach bob, use his land & get him to fund it lol

could the developer not find funding without the landowner being involved with the finance?

 

Well no unless Steve can do an equity release against his existing property or if Steve is say a financial planner, real estate,/strata manager, medico, solicitor, engineer, etc with his own professional practice then steve is able to do unsecured lending against the practice book.

Clearly Bob isn't able to either service the construction loan or come up with the contribution of funds - is that the problem?

 

The issue of GST and taxable supplies would also affect this scenario. You don't have to "sell" something for GST to impact.

Planning any dev needs consideration of structure, finance and taxes. And a view to making a profit.

 

Developer could possibly buy a 50% interest in Bob's property as TIC with Bob. They could then enter into a partition deed (or at settlement). They could then jointly borrow for the development, subdivide and end up with 1 each.

Advantages are that Steve gets to pay stamp duty at the lower rate, steve can help qualify for the loan.

but if they are strangers then many many issues. Even if they are friends there are many issues.

Simpler if Bob just sells to Steve and buys another property (Steve may pay the stamp duty and moving costs).

 

Hypothetical JV.

Bob and Steve meet down the pub and put $100 each on the bar. Bob and Steve drink beers all night laughing about suckers jigging around a small $800k JV deal that has more downside than upside.

Bob and Steve left the pub as mates and are still mates to this day.

The end.

pinkboy

 

A developer around my area was doing this a number of years ago and did exactly this for my mates parents. Knocked down there home, subdivided it, put 2 on the block, one for them and one for himself (which he sold).

My friends parents who are aging got a brand new low maintenance 3 bedroom home which has been great for them and the developer obviously made a tidy profit.
Long term financial decision then obviously this home is not going to be worth nowhere near as much, so less inheritance for the kids but it has allowed them a much better quality of life which is ultimately the most important thing.

Financing and taxation aside if this is something you are considering then I think it works best for the elderly.

 

It will be ok if the lending is not under NCCP, which is commercial lending field.

In the commercial lending field, Steve and Bob will have more choice, and private lending can also be an option. Steve needs to have strong financial ( cash flow) and Bob provides the security.
For the small duplex site, it may not worth it.

If Bob's property is unencumbered property, it will make thing easier to get the funding.

 

If I owned the land and was approached about this type of thing and the builder did not have the cash upfront plus a lot more I would tell him to go away, he needs to have sufficient cash and capital so it comes to a conclusion, or I may have a demolished house and never completed building.