Post development and valuation

Discussion in 'Development' started by Nabsinna, 23rd Nov, 2020.

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  1. Nabsinna

    Nabsinna Well-Known Member

    Joined:
    17th Oct, 2020
    Posts:
    55
    Location:
    Melbourne
    Hi all,

    Just for my own education- will definitely clarify with an expert prior to any action. Thanks in advance

    I am in the initial phase of feasibility analysis of potential development sites with pre-approval in place.
    Planning to knockdown and rebuild 2 townhouses and hold.. Objective is that I manufacture capital growth-use equity and take out my initial capital I put in-to keep going with projects.
    I am borrowing at 90% LVR as i am a professional

    Just wondering after purchasing the land, the bank would need to provide a construction loan for the construction of the units.

    1. What is the process of ensuring the bank provides the necessary funds for construction? Does the building contract detailing the cost of the project suffice? Is there any pitfalls i need be aware of early and risk mitigation actions I need to take?

    2. In terms of bank valuation at the end- are there any actions specifically I can take to ensure the bank values the property as close to the market value? Such as- is it better to subdivide before completion of construction- would having 2 different titles help. And would the subdivision cost be worth it for the increase in valuation? Also, if the bank is most likely to do a desktop valuation would it be wise to cut costs by doing a standard build?

    The cost of my project might be upto 1.9mil with each townhouse being worth from. 1.1 to 1.2 mil.

    Thanks for your advice
     
  2. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

    Joined:
    14th Jun, 2015
    Posts:
    10,599
    Location:
    Gold Coast (Australia Wide)
    few suggestions '

    At your mid range end value of 1150 the development margin looks to be 21 %

    Pretty much skin and bones for a fist timer ( assumption), does the 1.9 include all costs incl subdiv, interest and sales costs ?

    Subdivison before build with 2 townshouses seems problematic unless there are no shared walls

    If subdiv on completion, its likely the build val will come in 15 to 25 % below your estimate

    Nothing you or bank can do there, its an independent valuer call


    90 % lend will help, but wont get around a 25 % one one title haircut unless u have cash to put in


    ta
    rolf
     
    Lindsay_W likes this.
  3. Lindsay_W

    Lindsay_W Well-Known Member

    Joined:
    1st Jul, 2015
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    Location:
    QLD/Australia Wide
    Plans, specs, build contract to order 'as-if-complete' construction valuation - this will determine the LVR and how much money the bank will lend against the completed product.
    Typically you don't get another valuation at the end of the build, it's done upfront.
    You should speak to a broker if you haven't already.