One line valuation method haircut- triplex

Hi guys,

I recently experienced a 21% haircut on a valuation where I wanted to place 2 houses on one title. Then I subdivided it and got revalued and was ok to proceed with loan and construction.

I am getting ready for another project soon but a triplex. My questions:

1.Anyone have experience on the % haircut there on a triplex?
2. A triplex can still be achieved with 95% LVR right? see below notes
3. Do you think a triplex will have a larger haircut vs a detached duplex when valued in one line?
4. Any other information on a triplex is well appreciated.

Notes on triplex:

1. it will be on R3 land in western sydney
2. total lot size 660 ish meaning 220 each
3. estimated LVR is 71% without the haircut. With a haircut at 25% I'm estimating an LVR of 94.6%. This means I should be able to get through ok.
4. Land will be subdivided post construction.

Thanks team and have a great day.

 

We've done a few (for ourselves and others). Est around 25% haircut. 95 LTV seems very ambitious, I wouldn't even try that, credit approval will be very very difficult and you are not playing with the same wide lender pool. Perhaps not impossible, but generally approval chances are hurt a lot.
if you can provide some more figures to work with, can probably provide high level figures of what credit approvals are likely.

 

thanks mate


this is what im working with now

Construction Loan $ 1,234,809
Land loan $ 860,000 deposit of 210k for purchase price of 1m
Total loan $ 2,094,809
Value each $ 1,000,000 conservative
Total Value $ 3,000,000
LVR 69.827%
Haircut 25% assumed
One Line 93.103%


thoughts?

 

I think best budgeting for around 1.6-1.8m loan size based on your ends, at 70-80% LTV. Generally works out to be 50-60% LTV's of GRV calc on resi funding. 70 opens up lending options. 80 possible with a few. I don't think anyone will approve a 93% loan for something like this, without mezzo funding or some alternative funding options.

 

What is your profession?

 

hmmmm interesting , wont work at that price. have you ever seen one done above 90% LVR?

 

With a 2.2m total development cost I'd be expecting that banks will loan you around $1.65-1.75m. You'll be needing 20-30% funds for deposits on a triplex.

 

Appreciate the help

 

no I haven’t seen above 90, most wouldn’t entertain that either (lmi would be 60k+, large loan at that lvr would make most lenders think twice).
Have had success doing vals with different lenders and seeing big variances in valuations from one to another.

 

I assumed that your site is in Fairfield LGA. I think $1m per unit maybe not a realistic price as your project may end in 2023 and lot of uncertainty is just around the corner. Lots of units sell around $ 900k in canly vale, canley height, Smithfield area and prices are softening further every week.

Do you have surplus cash to cover other expenses? For example how you will pay DA/CC/Contribution cost. $100,000 cash is needed before you see any physical works commencing.

GST Margin Scheme apply to this development? Your $3m GRV will be less after GST. So recalculate your GRV. You will pay GST regardless of your project is profitable or not. So you cant avoid this like CGT. Bank will also factor this in their lending assessment.

Run a feasibility study again and add the following things to see the profitability of your project

Land Cost $ 1,000,000
Interest on land (2 years @ 2.5%) - $50,000
DA/CC/Contribution Cost/PCA inspection/subdivision certificate/consultant - $ 100,000
Construction cost - $ 1,200,000
Interest on Construction (1 year @ 4%) - $35,000 (approx - progressive payment)
GST - $300,000
Selling agent's cost - $ 30,000
Accounting/legal cost - $ 10,000
Contingency - $ 100,000

Total cost of the project is $ 2,825,000 = $ 941,000
https://www.realestate.com.au/sold/property-duplex+semi-detached-nsw-canley+vale-137122462

You may not get a residential loan if you don't have previous experience. In that case, you may need to go a non-bank lender. You may have to pre-sale 1-2 units which may not achieve $1m mark.

What % of the profit are you expecting on this project. Based on my assumption above I can see a profit of around 6% if you sell all 3 units at $ 1m.

 

@ParraEels is some great feaso figures.

Although IMO if your buying land at 1 for a triplex with 3m ends in west, your going to be in the money and do pretty well (very well). GST calc isn't quite that high, my 'get ready to build' cost is around 65k (not 100), and we generally aim to turnover in half that time (reducing interest and getting speed into it). My very rough figures are around 20% GP here, using your numbers on sales + constructions.

Given the profitability of the site, the 'in one line' haircut increases a little bit, hence apply a bigger discount than 21% as noted above.

GST calc is part of the discounting process, so you don't need to double up on it.

Overall our triplex 'contributions' that we budget for something like this is:
- 25% for land purchase
- 70k for DA costs hard costs
- Construction shortfall in your case of ~300-400k (a bit higher coz your land loan is high)
Get to your total cash contribution. Generally 500k entry +.