Commercial Finance Options

[AdamT]

Hello Everybody

I have been lurking around the forum for a month or so now but decided it was time to make my first post.

I have a 900 m2 site in Eastwood, NSW which currently has an old red brick house on it. I am about to submit a DA to subdivide on Torrens title and construct 2 x 4 bed attached dwellings with DLAG.

As part of the DA process, our quantity surveyor has estimated the construction cost to be around $750,000. I believe the cost is high due to the slope of the land and the high demand for builders.

The land is 100% owned by my grandmother (old age pensioner) and she has instructed me under power of attorney to do this for her. I would prefer to obtain finance with interest fully capitalised which is why I am looking for commercial finance. My understanding is that standard residential construction loans require monthly repayments. She is able to put up around 20% of the total project cost in cash if the financier will lend the rest.

A developer friend of mine suggested Balmain Commercial as a possible financier, but I would like to get some ideas of other sources of finance that meets my needs.

Any ideas?

 

[Terry_w]

You will find it extremely difficult to finance something like this for an 80 year old under a power of attorney. Main residence too it seems. Many lenders do not even accept documents signed by an attorney for the standard residence type deals.

Any lender would risk having the contract unenforceable.

 

[AdamT]

What if my cousin and I entered into a joint venture with our grandmother (land owner) and obtained finance under our own names? Would that get around the PoA issue? The property is no longer her PPOR as she is now living with my father as she doesn't want to be alone. My uncle is residing int he house rent free at the moment.

 

[Shahin_Afarin]

The issue is that your GM is on the title. The deal itself is easy to finance.

You would need to have the title in your name or whoever the bank can give the finance to.

Why do you want to capitalise the interest? Is it a cash-flow thing?

 

[AdamT]

Why do you want to capitalise the interest? Is it a cash-flow thing?

Yes - We intend to pay out the loan in full once construction is complete and the properties are sold. As we won't be earning an income from the asset whilst it is being constructed, I don't want to hammer my cash flow with interest repayments.

 

[Shahin_Afarin]

Thats cool but the capitalised interest would be added onto the LVR so basically you will need more cash to inject into the build upfront and you will need more than 20% cash for the project.

 

[Terry_w]

In the other post you say that grandma hasn't lost capacity so why not you do the running around and she can enter into contracts herself.

You need a broker experienced in these sorts of developments and I suggest you give Shahin a call as he seems to know what he is talking about.

 

[AdamT]

In the other post you say that grandma hasn't lost capacity so why not you do the running around and she can enter into contracts herself.

The only reason my cousin and I are talking about entering into contracts is because our grandmother is an old age pensioner and I assumed no finance company would entertain her.

 

[Terry_w]

The only reason my cousin and I are talking about entering into contracts is because our grandmother is an old age pensioner and I assumed no finance company would entertain her.

She is the owner so it will be based on her situation not yours. You are not entering contracts yourself but just signing on her behalf.

 

[Marty McDonald]

Consider selling the land into a trust or company controlled by you all to avoid any financing issues. Tax considerations of course but may be fav

 

[AdamT]

If she was to sell the property to a trust I am assuming we would need to pay stamp duty? Can she sell it to the trust for $1? I'm assuming the stamp duty will be calculated on market value if she does that anyway.

Also, with commercial finance. Is the equity in the property included into the 20-30% put up by the borrower when applying for a commercial loan? The property is 100% owned by my grandmother and is worth around $1.5 to %1.8 Million with a DA on it.

 

[Terry_w]

If she was to sell the property to a trust I am assuming we would need to pay stamp duty? Can she sell it to the trust for $1? I'm assuming the stamp duty will be calculated on market value if she does that anyway.

Also, with commercial finance. Is the equity in the property included into the 20-30% put up by the borrower when applying for a commercial loan? The property is 100% owned by my grandmother and is worth around $1.5 to %1.8 Million with a DA on it.

Your would need to seek legal advice as many issues.

Stamp duty would be paid by the purchaser - the trust in this instance, and it would be at market rates.

There are implications if she sells it for $1 and different implications if sold for market value. Each may have advantages and disadvantages.

Yes the lender would consider the equity in the property.

 

[sanj]

Does she live there atm?

Have you done the numbers realistically on what the end result would be after tax for the 2 scenarios? You might find its not a big difference and the effort and risk may not be worth it