capitalising interest for a small development - would you?

[Ms Jade]

in my opinion, if a deal stacks up on it's own merit, then it should be funded on it's own merit - however, while i would prefer that funding to be cash, i think i'm going to have to borrow for this one.

Aaron, IMO part of the DD for a deal stacking up includes the carry costs - no biggie. If it covers all these costs & you make $, who cares in the end?
I understand you feeling more conservative in your situation but it definitely sounds like a goer to me. Good luck!

 

[datto]

or you could put the extra cash into the stock market

 

[Aaron Sice]

or you could put the extra cash into the stock market

huge BFO pass on that one - but thanks all the same!

 

[boods99]

Sounds like a good deal Aaron...
My opinion is that if the bank is bullish enough with the project and will let you cap interest, then go for it.
If you use your own cash, it decreases your return on equity considerably... ie, your money is not working as hard for you as it could.
Use the cash for a fall back position. Good luck, and keep us posted on the deal...always interesting to hear what's going on out there.


Boods

 

[Ian (WA)]

G'day All,

To the brokers & indeed anyone else who has played recently:

How easy is it to get financiers (on a comm lend) to agree to Cap Int in a proposal, such as Aarons, these days?

My reason for asking is twofold;

1). I funded with cash a very significant amount of costs on my own 3 x townhouse dev in SA. I'm not too hung up on it, other than in hindsight I may have used those funds elsewhere; it just meant I borrowed less.

2). Ex missus has got the claws into me for assets split & ongoing spousal support, so in the wash up it means I'm going to find cash reserves in the future harder to accumulate & retain. If lending sentiment says Cap Int is feasible for future developments, then I may be able to keep playing in the eyes of financiers.

I should get keys for my townhouses in Feb. so the dev is pretty well complete; but i'm now wiser regarding Cap Int for the next project if lending climate is supportive when the time comes.

Nice work too by the way Aaron!!

Ian.

 

[Rolf Latham]

Hi Ian

If the project LVR supports it, AND there is an exit strategy such as presales or take out finance, or the lender is happy to roll on the facility, then should be no probs !

Project based funding such as this is very diff to resi.......thats why you pay a bit more for the increased risk

ta

rolf

 

[Aaron_C]

Hi Ian,

For most property developments interest capitalisation is very normal. However, you would probably need to make sufficient pre-sales to cover all the development-related debt before this will be an option for you.

 

[Ian (WA)]

Thanks for speedy replies Rolf & Aaron,

My piddly development only just crossed over into a comm lend with CBA because their resi dept. couldn't handle the application; so I ended up having it approved at 8.1% comm about 12 months ago.

Intention is to hold as rentals for time being and as soon as I get the keys i'll refi down to resi rates - will try to stay with CBA and hopefully have a relatively smooth transition.

My take on both your sets of comments is that a project would need to provide healthy evidence of pre-sales, or projected achievable rents (if holding) or an alternative source of supporting income.

So if the aforementioned items are covered, generally current lending sentiment is supportive - unlike say GFC vintage 3 years ago?

Sounds promising......

Cheers!

Ian.

 

[Bigtone]

Thanks for speedy replies Rolf & Aaron,

My piddly development only just crossed over into a comm lend with CBA because their resi dept. couldn't handle the application; so I ended up having it approved at 8.1% comm about 12 months ago.

Intention is to hold as rentals for time being and as soon as I get the keys i'll refi down to resi rates - will try to stay with CBA and hopefully have a relatively smooth transition.

My take on both your sets of comments is that a project would need to provide healthy evidence of pre-sales, or projected achievable rents (if holding) or an alternative source of supporting income.

So if the aforementioned items are covered, generally current lending sentiment is supportive - unlike say GFC vintage 3 years ago?

Sounds promising......

Cheers!

Ian.

g'day ian,

congrats on the development nearing completion.

as the others said , it all depends on the deal

ps. hope the backpackers in HB are treating you with the respect you deserve

 

[Ian (WA)]

G'day BT - nice comment, just gagged on my coffee!

Ah....yep!! Backpackers are everywhere and loving our sunshine & heat.

Respect? A gnarly, old, wannabe lecher like me doesn't deserve respect.

Will be heading up to your stomping ground on Friday (have an appointment in Bundy very early) so am going to head up for a lightening fast squiz straight after). Don't worry, I'll leave my wallet at home, so won't be buying........well not yet

Have to fly back to WA Saturday, but will head up to Gladstone to go 'site seeing' (pun intended) for a couple of days on my next break.

Cheers,

Ian.

 

[Aaron Sice]

the end product is a 2-fer-1 - being that we will only owe roughly the market value of 2 units, but have 4 to rent out and borrow against later.

it's CF+ and an instant equity generator.

 

[FormerLurker]

the end product is a 2-fer-1 - being that we will only owe roughly the market value of 2 units, but have 4 to rent out and borrow against later.

it's CF+ and an instant equity generator.

Sounds like a huge win - congratulations

 

[Aaron Sice]

Sounds like a huge win - congratulations

no champagne yet - got to get the deal over the line first!!!