Development/building loans, I'd really love your opinion!!

[morty]

Hey guys
Put this in the finance section but badly need advice so i've banged it on the general forum as well. (Hope that's allowed?)

I've been checking out this forum for a fair while now and have learnt a heap by reading everyones posts, especially loving the interviews!

With so much knowledge out there i thought i'd post my dilemma and any input would be fantastic, good, bad or otherwise!

I 'm pretty stuck loan wise at the moment and westpac have really got me by the balls cross-coll wise, (my fault i know!) and i need a new plan to allow me to properly put the wheels in motion

A quick summary : I am a licensed builder with my own building company and also have a development company set up with a couple of family members.

The dev company has 3 properties:
1 reno'd house in Yarrawonga (home town)
worth 200k owe 164k
1 vacant block in same town
worth 80k owe around 70k (about to start building on it)
1 house in brunswick, melb
worth around $750k, owe 470k and just got DA for 6 townhouses.

Now here's the dilemma. I need to arrange finance for the 6 units but westpac have me so tied up that they are making it terribly hard to move.

They might give me the money but they are wanting me to sell quite a few off the plan. If i was attacking this on my own i'd certainly have to make some pre-sales, but there are 5 of us in this and i want to keep the whole block and never sell it.

My plan is to organise finance for the townies and then build and sell around 3-4 houses per year to cover any shortfalls. (meaning more loans)

The units will cost around $2m all up but have been valued at around $3.2m on completion. They are in a fantastic spot and i want to build my portfolio around them.

I know this scenario's doable but i just don't know how to structure it.

I've pm'd a recommended broker but would love to hear what you guys have to say about it.
Thanks for your time

Morty

 

[Minx]

Get investors involved. Thats what the development builders who i know do.
Unless you have cash or equity it's highly unlikely the bank will give you 2mill.

Hope that helps.

 

[Mark C]

Morty,

As Minx has said you may need investors, it's unlikely a bank will lend on 6 units without presales.
A bank will probably only lend 70% of costs to construct, you will need to have enough equity to make up the difference or find a 2nd tier lender to make it up.

There are institutions that will lend 100% of costs but the deal will have to stack up and any risk will be reflected in the interest rate.

There is a solution just keep looking and get in contact with the commercial lending sections of finance institutions not the residential sections.

Mark

 

[morty]

Thanks for your input guys. I guess investors sounds like the way to go. Would you advertise for them or what would be the best way?

Determined to keep these things so i'll search till i find the answer.

Thanks again

 

[GoAnna!]

How are the other 4 family members contributing? Do they have equity to contribute? Can they borrow against other properties? (at resi rather than commercial rates)

Usually 75% of end value is as good as it gets. Which does work on your numbers.

In saying this they will factor in the capitalising interest costs and also contingency money.

At any point of the project they like to hold back enough to complete the project themselves. Usually use a QS (at your cost) for this.

They are unlikely to pay for the GST component.

They like to see some "hurt" money in the deal.

Do you have full estimates of costs and professional valuations of projected end valuations?

The big 4 are hard to get money out of it you don't want to sell unless you have excellent serviciability. I would suggest that you try NAB and ANZ BankWest to begin with. Best of luck!

 

[grossreal]

hi m
getting investors
the eternal question.
by all means email me but unless there is 20% margin in the project it won't sail.
there are lots of ways to get a investors or b to structure a loan and presales are not a big issue if you structure the deal right.
you need to go to a commercial lender and because alot of my guys were either getting their fingers burnt or alot of the resi guys simply don't understand comm lending we have setup a new group that just does deals 1 mil and above and only comm deals.
and am at this stage flat out.
and its interesting for me as its a very different market.
the group is made up of two brokers comm, a financial advicer and a fund finder or commercial banker free lance and me.
and we tell the client depending who or hw it comes thru if the dal is possible and then send thru to a lender.
we structure the deal for the lenders and if the project requires equity injection and the deal is a doable deal we inject the equity.
and is going at this stage very well.
the must be able to be done or we tell you off the bat and no cost up front until we have a deal and a lender that will finance once thats worked out then a commitment fee is charged from the group and the loans goes thru and we internally pay commissions depending who structured the deal.
just a word of warning don't for goodness sake pay a deposit or up front fee to start a loan or you can kiss it good buy.
and if you email me I can give you a list of brokers currently in the market that I have people associated with me on my project that have lost money that is not available to be recovered due to the fine print that says its non refundable.
so check that you are not going into a fund ware house group.