Development finance for team?

[YPG]

Hi guys,

Just a quick question to get an initial feedback on the following scenario.

Assume total development costs of $2,000,000 (including absolutely all costs); including for the purchase of a raw development block within 5-8km of Brisbane CBD and within 400m of train station. Obtaining approval and constructed 3 storey eight 2x2 units with ground floor parking. Site with appropriate zoning and generally appropriate for the development.

Commissioning a well known developer with a lot of experience (over 20-30 years) as a mentor and second pair of eyes to overlook the development (not a full on project manager). Final product estimated to be worth around $3,000,000 and each player retains 2 units each.

Say there are four of us like minded friends with salaries ranging from 70k-200k - do we have any chance of a bank giving us a development loan at 350k each, 1.4million total? (We each have 150k cash/available equity - 30% deposit total). Even though this would be our first development and the banks are giving out money more reluctantly? Obviously we would look to engage excellent consultants, financiers, feasibility, and lawyer to produce the best case towards the bank.

I know there is next to no specific information given here - but basically what chance do people give a bank loaning to 4 separate first time players (as a team) even if we have a total 30% deposit. Selling a couple off the plan is optional but ideally we would each like to acquire two units each at wholesale prices and get tenants in that will easily cover repayments. Each player looking to hold medium to long term.

Long term goal to rinse repeat several times over the years to come and become our own experts on this strategy. We have all invested in different things apart from property in the past with decent results and no tension/dramas between us.

As I said just looking for initial thoughts before we contact a mortgage broker - would be good to hear some views before then though.

Cheers Guys

YPG

 

[Qlds007]

YPG

With the limited information that is available i would suggest that with $600K deposit and based on the fact that each of you can show satifactory serviceability to fund the individual units you are retaining at the end of the project then financing an amount of $1.4M should be achieveable.

In saying this the loan would be in the name of all 4 of you / Company or entity you intend to use and then you would have to restructure the loan in issueance of the Titles. Course Stamp Duty will be triggered again on the Transfer but could still be transferred at cost price + $1.

 

[Peter_Tersteeg]

I'll back up Richard. Subject to a few caviets such as affordability, it does look quite acheiveable.

 

[Aaron_C]

If you're going to keep it - you need to demonstrate serviceability. Sounds like a commercial proposal so it's do-able but you probably need more than 30% deposit to satisfy a commercial lender.

 

[Qlds007]

Aaron i think that could be overcome by using a GR loan based on net GST values.

As long as there is a take out position and each party can support the properties they intend to take over through their own individual A & L / affordability i think the deal could be done.

 

[YPG]

Thanks for the fast replies guys. One thing I was concerned about was the fact that we would be aiming to buy a raw site and acquire DA and BA from scratch. Best case scenario all approved in 6-8 months, but there is definitely the risk it takes much longer - is this scaring off lenders at the moment?

For some reason I assumed more parties involved would leave to the lender being more conservative - but maybe it sounds like this is not the case as together our income/servicibility is fairly high.

Will need to contact someone about the structure that would be suit our objectives and circumstances - haven't the slightest idea on what the best option would be.

Thanks again for the responses

 

[Aaron_C]

Aaron i think that could be overcome by using a GR loan based on net GST values.

As long as there is a take out position and each party can support the properties they intend to take over through their own individual A & L / affordability i think the deal could be done.

Yes I agree with a strong borrower as part of the application they may be OK. I just get the feeling that if it's 4 x PAYG borrowers with limited assets in this situation which would scare off a commercial lender.

 

[Aaron_C]

Thanks for the fast replies guys. One thing I was concerned about was the fact that we would be aiming to buy a raw site and acquire DA and BA from scratch. Best case scenario all approved in 6-8 months, but there is definitely the risk it takes much longer - is this scaring off lenders at the moment?

Not easy to get finance as a developer in Queensland these days...lots of developers have been bankrupted by the banks and they have taken a lot of losses on their books. It has to be a very strong deal with very strong numbers on the development itself AND very strong financials from all applicants.

 

[Qlds007]

If between you have $600K deposit then to be honest you are going to have to put that in upfront so the lenders exposure is going to be fairly limited.

 

[Marty McDonald]

I think you can set it however why not do what developers do and strike an option over the land, normal fee is 1% for say 12 months. Then apply for the DA.

You don't want to finance the land before you know you can definately get the DA approved and more importantly you don't want to be left holding and asset you cant DA and therfore may struggle to sell. Not to mention the holding interest.