Construction loan
- Thread starter WASP
- Start date
Hi Wasp,
Can't see why not. If you have sufficient equity in the land you won't need to contribute more of your money.
There are some development loans in which you don't pay any thing till the property is sold. Of course, there is an interest premium for such facility. However, there are some house and land packages in which the builder charges you 5% deposit to start and nothing to pay till completion.
Rgds,
James
hi WASP
most development funding is done in two ways
capitalised interest that is nothing until the end and the property is sold most common
and interest along the way
were the lender charge interest and you pay that while you develop
common with nab and st george.
its horses for coarses I use the capitalised interest as I use less of my money into the deal.
80% of the end value is called a grossrealisation loan and no its not a play on my name that is what its called ( it is how I decided on the name as this is the form that I usually use)
grossrealisation loan are very common and can be used for house construction
but alot of lenders don't like to use them on the smaller constructions
but again st george do and so do nab.
anz hate them mostly because they don't understand them and they don't at this stage have that risk profile
but that just my view and no reflection on any anz managers that maybe here.
you can get 80% of land,100% of construct, capitalised and as a grv (they usually call them grv loans).
the big thing to look at is not the loan
its the funding table and these can be very difficult to understand
and you do need to have very good head for finance
a very good calculator
or a very good accountant that understands construction finance,
as they can be very different and can throw out your end costs by thousands.
here is a couple of things to look at
% over bank bill rate
usually the interest is not as simple as say 8%
its usually 2% or 3% over the bank bill rate
which could be say 6% (changes daily)you think good its 8%
no look at whos bank bill rate and when is the bill rate is registered
if say its anz bank bill rate thats very different to say westpacs bank bill rate it can be .3 of a percent difference (most use the reserves rate but not all)and thats alot of money per month on a 31mil construction over 24 months.
next
line fees again these are a risk fee and they can be very different
next
qs fees
see if you are paying one fee to the lender and another to the qs company
next establishment fees
these are very hard to work out as a broker can have feeders fees in the deal and so can the lender even if you have no broker involved.
then there is on going management fees again very different for the different lenders
for me one lender can say I will lend you on this type of loan and you can be out of pocket for thousands even on a house construction if you have not checked these fees.
you need to be good at excel and even then its hard to work out which deal is the best so good luck.
no body said developing was easy and if they did they are not developers.
post any questioon you like I don't come back that often but will answer as best I can.
si ya
most development funding is done in two ways
capitalised interest that is nothing until the end and the property is sold most common
and interest along the way
were the lender charge interest and you pay that while you develop
common with nab and st george.
its horses for coarses I use the capitalised interest as I use less of my money into the deal.
80% of the end value is called a grossrealisation loan and no its not a play on my name that is what its called ( it is how I decided on the name as this is the form that I usually use)
grossrealisation loan are very common and can be used for house construction
but alot of lenders don't like to use them on the smaller constructions
but again st george do and so do nab.
anz hate them mostly because they don't understand them and they don't at this stage have that risk profile
but that just my view and no reflection on any anz managers that maybe here.
you can get 80% of land,100% of construct, capitalised and as a grv (they usually call them grv loans).
the big thing to look at is not the loan
its the funding table and these can be very difficult to understand
and you do need to have very good head for finance
a very good calculator
or a very good accountant that understands construction finance,
as they can be very different and can throw out your end costs by thousands.
here is a couple of things to look at
% over bank bill rate
usually the interest is not as simple as say 8%
its usually 2% or 3% over the bank bill rate
which could be say 6% (changes daily)you think good its 8%
no look at whos bank bill rate and when is the bill rate is registered
if say its anz bank bill rate thats very different to say westpacs bank bill rate it can be .3 of a percent difference (most use the reserves rate but not all)and thats alot of money per month on a 31mil construction over 24 months.
next
line fees again these are a risk fee and they can be very different
next
qs fees
see if you are paying one fee to the lender and another to the qs company
next establishment fees
these are very hard to work out as a broker can have feeders fees in the deal and so can the lender even if you have no broker involved.
then there is on going management fees again very different for the different lenders
for me one lender can say I will lend you on this type of loan and you can be out of pocket for thousands even on a house construction if you have not checked these fees.
you need to be good at excel and even then its hard to work out which deal is the best so good luck.
no body said developing was easy and if they did they are not developers.
post any questioon you like I don't come back that often but will answer as best I can.
si ya
Hi WASP,
That was an excellent summary of development funding by GrossReal. If you are only building one house or a small number of units you could also look at getting a residential construction loan, which is based against the as-is value of the land and the construction costs as set out in a fixed price building contract. The banks will lend you a percentage of the as-is value of the property, plus a percentage of the costs set out in the building contract and drawn down in progress payments as per the contract. This is usually preferable to a development loan if you qualify as you will be able to get up to 97% of costs and will be charged the lower residential rates. On the downside you need to show servicing, although you can do up to 95% on a low doc basis (at much higher rates). Hope this is helpful.
Kind Regards,
Cameron Perry
Perry Financial Strategies
That was an excellent summary of development funding by GrossReal. If you are only building one house or a small number of units you could also look at getting a residential construction loan, which is based against the as-is value of the land and the construction costs as set out in a fixed price building contract. The banks will lend you a percentage of the as-is value of the property, plus a percentage of the costs set out in the building contract and drawn down in progress payments as per the contract. This is usually preferable to a development loan if you qualify as you will be able to get up to 97% of costs and will be charged the lower residential rates. On the downside you need to show servicing, although you can do up to 95% on a low doc basis (at much higher rates). Hope this is helpful.
Kind Regards,
Cameron Perry
Perry Financial Strategies
Last edited by a moderator:
hi mortgageman
yes
the best way if you can is to get your funding if possible as a resi form of loan as the fee structure changes in all areas.
and the nab st george people will steer you that way anyway.
the other thing that you do have to watch and your post did ***** my ears up is the broker charges
for some reason the commercial brokers charge alot more then resi brokers so again these are cost to check if you are going down that track
and construction brokers there are some real shockers out there but that for another post.
this is no reflection on you cameron this is reflection on the industry.
its half of one and half of another if you use your money the interest cost goes down your profit goes up and you can't claim the use of your money
or you use less of your money the cost go up the profit in the project is lower but the profit to you is higher as you have put less into the deal.
so its a half full half empty question.
construction funding is a head ache to everyone and is not for the faint hearted
yes
the best way if you can is to get your funding if possible as a resi form of loan as the fee structure changes in all areas.
and the nab st george people will steer you that way anyway.
the other thing that you do have to watch and your post did ***** my ears up is the broker charges
for some reason the commercial brokers charge alot more then resi brokers so again these are cost to check if you are going down that track
and construction brokers there are some real shockers out there but that for another post.
this is no reflection on you cameron this is reflection on the industry.
its half of one and half of another if you use your money the interest cost goes down your profit goes up and you can't claim the use of your money
or you use less of your money the cost go up the profit in the project is lower but the profit to you is higher as you have put less into the deal.
so its a half full half empty question.
construction funding is a head ache to everyone and is not for the faint hearted
Hi GR,
I don't disagree with you and you certainly should be wary of being overcharged by brokers, in particular, you should shy away from paying upfront fees or non-refundable commitment fees. However, like you said that issue is a whole other discussion.
Kind Regards,
Cameron Perry
Perry Financial Strategies
I don't disagree with you and you certainly should be wary of being overcharged by brokers, in particular, you should shy away from paying upfront fees or non-refundable commitment fees. However, like you said that issue is a whole other discussion.
Kind Regards,
Cameron Perry
Perry Financial Strategies
Last edited by a moderator:
Hiya ASDF
Tis not that simple.............more like a pinch of bat guts and a swig of vodka mixed with a rat tail
Whats a good lender with one situation isnt with another.
Chase down a broker to see what can be done, else you could do the rounds of 15 or so lenders.
ta
rolf
Tis not that simple.............more like a pinch of bat guts and a swig of vodka mixed with a rat tail
Whats a good lender with one situation isnt with another.
Chase down a broker to see what can be done, else you could do the rounds of 15 or so lenders.
ta
rolf
Hi Wasp,
I think Rolf is more trying to say that you are better seeing a broker, then you are going to each of the lenders individually. We, as brokers, can compare numerous lenders and save you alot of leg work.
We can also figure out how much you could borrow, based on your income for each lender.
I hope that helps. If you need any more help please let me know.
hi olback
I think you are mixing up resi lending and construction lending
they are very different and for me not saying you are one of them
but I see alot of resi brokers doing commercial and construction lending and they are very different.
and what happens is that a resi broker will take a commercial or a construction loan and try and do it
and by the time a commercial or construction lender gets it
it look like a dog dinner.
for start costruction lending has very little to do with your serviceability and has alot to do with rate of return.
if you are doing a 2mil development and thats a small development to service that loan would require an income of around 5 mil pre year before tax
so as you can see service abilty is not a major requirement on the board when doing construction lending.
the main things are the following
rate of return or developer margin for me must be above 20%
a@l of director and the entity thats developing( to show that you are not a straw person)
marketing and end sales values and how you will sell if need be(exit method)
hurt money or what skin you have in the deal.
these are the only major requirements.
and as for going to lots of brokers thats fine just make sure they have done construction lending before
there are bodies out there that are lending warehouses
so a broker sends the deal to another broker that sends it to a lending warehouse( they call them selves funders but in reality they arn't as they take the loan to a funder so the are just bigger brokers) I would post a couple of them but I am mindfull of the issue with regards to bagging companies.
and for me there are alot of brokers that take a client in and send them thru to these groups.
they usually charge up front fees to do the deal
and when they go to these higher brokers these broker decide on the loan that they will run with
and knock back the others and the establish fees goes into limbo.
they don't say they won't repay the establishment fees they say they will.
you just have to chase for about 12months to get them back.
this is a rought in the system and is a big problem.
and its being done by alot of brokers
any fees you pay up front kiss it good by
as it will cost you more then its worth in chasing to get it back.
I have alot of brokers on my data base for commercial and construction and they all have there good and bad points but with the industry as it is
If I was starting off in developing I would not go thru a broker unless that broker was recomend to me from another developer and even then I would be checking on his sucess rate and not pay up front fees.
I would get him to pay the up front fees.
try that one it works
and olback yes broker save leg work on a resi loan
but if you stuff up or send the loan thru one of these warehouses the leg work for that potential developers will be magnified 100 times
as these warehouses send it to there data base of lenders and if its not presented right you can't present it twice to a lender.
so as I said before this type of lending is for people that can do the deal not wanabees.
and if you have not done it before save your clients the grief.
at least dealing direct
the lender understands your deal
with alot of current brokers how can the lender understand the deal when the broker doesn't understand construction funding
and this is not a reflection on brokers that have posted here but its a fact.
I have a handfull of brokers melb sydney and bris that understand construction funding and about 5 times that
that don't or they may understand it but would not have a clue how to but the loan together.
and that just my data base
god help the guys that are just starting out.
you can stick a brokers name up
take clients for 5k a shot and just send them to these warehouses.
sounds fancifull
well no its true and alot of them opporate in sydney.
and rolf is right
the reason for the a pinch of bat gut is for your head ache,
the vodka is to front your partner as you just throw away 5k
and the rats tail is to put on your desk with a cut in it
to remind you not to go to that broker or the person that recommended him/her to you.
I would add another ingrediant and thats lemon
to give you a very bad taste in your mouth
to remember and make sure you try to get your moeny back and if not successfull that bad taste will tell you to tell as many people as possible about that companies actions.
my .002
I think you are mixing up resi lending and construction lending
they are very different and for me not saying you are one of them
but I see alot of resi brokers doing commercial and construction lending and they are very different.
and what happens is that a resi broker will take a commercial or a construction loan and try and do it
and by the time a commercial or construction lender gets it
it look like a dog dinner.
for start costruction lending has very little to do with your serviceability and has alot to do with rate of return.
if you are doing a 2mil development and thats a small development to service that loan would require an income of around 5 mil pre year before tax
so as you can see service abilty is not a major requirement on the board when doing construction lending.
the main things are the following
rate of return or developer margin for me must be above 20%
a@l of director and the entity thats developing( to show that you are not a straw person)
marketing and end sales values and how you will sell if need be(exit method)
hurt money or what skin you have in the deal.
these are the only major requirements.
and as for going to lots of brokers thats fine just make sure they have done construction lending before
there are bodies out there that are lending warehouses
so a broker sends the deal to another broker that sends it to a lending warehouse( they call them selves funders but in reality they arn't as they take the loan to a funder so the are just bigger brokers) I would post a couple of them but I am mindfull of the issue with regards to bagging companies.
and for me there are alot of brokers that take a client in and send them thru to these groups.
they usually charge up front fees to do the deal
and when they go to these higher brokers these broker decide on the loan that they will run with
and knock back the others and the establish fees goes into limbo.
they don't say they won't repay the establishment fees they say they will.
you just have to chase for about 12months to get them back.
this is a rought in the system and is a big problem.
and its being done by alot of brokers
any fees you pay up front kiss it good by
as it will cost you more then its worth in chasing to get it back.
I have alot of brokers on my data base for commercial and construction and they all have there good and bad points but with the industry as it is
If I was starting off in developing I would not go thru a broker unless that broker was recomend to me from another developer and even then I would be checking on his sucess rate and not pay up front fees.
I would get him to pay the up front fees.
try that one it works
and olback yes broker save leg work on a resi loan
but if you stuff up or send the loan thru one of these warehouses the leg work for that potential developers will be magnified 100 times
as these warehouses send it to there data base of lenders and if its not presented right you can't present it twice to a lender.
so as I said before this type of lending is for people that can do the deal not wanabees.
and if you have not done it before save your clients the grief.
at least dealing direct
the lender understands your deal
with alot of current brokers how can the lender understand the deal when the broker doesn't understand construction funding
and this is not a reflection on brokers that have posted here but its a fact.
I have a handfull of brokers melb sydney and bris that understand construction funding and about 5 times that
that don't or they may understand it but would not have a clue how to but the loan together.
and that just my data base
god help the guys that are just starting out.
you can stick a brokers name up
take clients for 5k a shot and just send them to these warehouses.
sounds fancifull
well no its true and alot of them opporate in sydney.
and rolf is right
the reason for the a pinch of bat gut is for your head ache,
the vodka is to front your partner as you just throw away 5k
and the rats tail is to put on your desk with a cut in it
to remind you not to go to that broker or the person that recommended him/her to you.
I would add another ingrediant and thats lemon
to give you a very bad taste in your mouth
to remember and make sure you try to get your moeny back and if not successfull that bad taste will tell you to tell as many people as possible about that companies actions.
my .002
