Development Finance Pitfalls for the first timer.....
- Thread starter Jtkumnick
- Start date
Aaron we all now a pre-sale means nothing at all on an off the plan property.
Sure you might keep the deposit but when is a sale really a sale.
When the valuation comes in 15% less than the contract price and the marketing agents have packed up and moved onto the next project the developer gets left holding the can or in a legal battle with the purchasers.
Should have the seen activity on the gold coast over the last few years.
Sure you might keep the deposit but when is a sale really a sale.
When the valuation comes in 15% less than the contract price and the marketing agents have packed up and moved onto the next project the developer gets left holding the can or in a legal battle with the purchasers.
Should have the seen activity on the gold coast over the last few years.
Thanks Guys,
Serviceability isnt a problem on this one, 4 adult working brothers to share the dev loan costs, just thought there might be a product that lets you capitalize the payments until block sales cash come through- but if the general consensus is to get a residential LOC and pay back payments on what i draw down- i will do that one. Im assuming you can get these interest only with enough equity in the original property?
Serviceability isnt a problem on this one, 4 adult working brothers to share the dev loan costs, just thought there might be a product that lets you capitalize the payments until block sales cash come through- but if the general consensus is to get a residential LOC and pay back payments on what i draw down- i will do that one. Im assuming you can get these interest only with enough equity in the original property?
Yes Aaron and you know what it is like.
We get the phone call / email from the client who has 2 weeks to settle or loses their deposit and their previous broker isnt returning calls.
Val is in and is well short but it is ok the broker cross colleralised the loan with their previously unencumbered PPOR. They want you to take over the deal but dont want you to take more than 2 weeks otherwise they will get penalised.
I have seen many a client threaten class action against the developer and you say to them more a matter of seeing who has the deepest pockets when it comes to legal costs.
JT on a side note their is a many a LOC product which doesnt require the interest to be paid each month and can be capitalised within the limit. Also unless the brothers are on Title their serviceability wont be much use
We get the phone call / email from the client who has 2 weeks to settle or loses their deposit and their previous broker isnt returning calls.
Val is in and is well short but it is ok the broker cross colleralised the loan with their previously unencumbered PPOR. They want you to take over the deal but dont want you to take more than 2 weeks otherwise they will get penalised.
I have seen many a client threaten class action against the developer and you say to them more a matter of seeing who has the deepest pockets when it comes to legal costs.
JT on a side note their is a many a LOC product which doesnt require the interest to be paid each month and can be capitalised within the limit. Also unless the brothers are on Title their serviceability wont be much use
Yeah im in QLD and there has been a lot of carnage- but then again there has been some stupidly priced rubbish being built around the place. My mind gets blown everytime i see a new block of townhouses being sold off the plan to the NT or South Africa or wherever the travelling sales show is for $400k a pop, when they are built right next to an existing (all most identical) townhouse complex that sells for $280k or so........
Something had to happen in QLD......
Having said that, my development is awesome, well priced and beautiful in everyway and probably worth 10% more than what i think........haha
Something had to happen in QLD......
Having said that, my development is awesome, well priced and beautiful in everyway and probably worth 10% more than what i think........haha
Ok, so we're in a similar position. We have the DA and are currently doing the working drawings. We own the block unencumbered. The three of us were thinking of getting a loan each to build 2 townhouses each (there are six in total) for the construction. We are building to hold. Would it be better to get a single LOC for construction against the equity in the property than getting three separate loans?
Hi todd
the equity can only go so far.
if you have external equity to the project, go for it.
I reckon youd be well served to have a chat to a broker like Aaron or PeteT amongst others
t
arolf
Yes it's fine if you have another security to get the LOC from. If you are using the same land to do the building on you will run into problems because it would involve lying to the lender about the use of the LOC.
I would only suggest the loc for the prelims not the actual construction of the townhouses.
Thanks for the responses. Thinking of the best way to finance the build has been tricky for us. Definitely time to ask some experts! We were able to get the project to this stage by ourselves but it looks like we need sound advice before ending up using the financial product.
I dont really follow? If there is enough equity in the block hes building townhouses on, why would he offer another unrelated property as security as well?
Assuming there is enough equity in the property and the 3 guys can service the LOC, why wouldnt a bank want to lend against a build that adds value & income?
I mean they could be taking the $$ from the LOC and betting it all on red at the casino?
Because if they see you building 4 townhouses on the property it affects the security of the property as it becomes a commercial development. Be careful.
Surely though for a bank their biggest worry is that the owners go bust or run off and they are left with the secured property- wouldnt a development site, even half built be worth more to them than vacant land?
Im not saying to lie to a lender at all, im trying to understand it from their point of view.
Surely if Person A walks into a bank, asking for 80% lend and allows a mortgage over his property, uses the cash to build townhouses that produce value & income- that would be preferable in a lenders eye to Person B who borrows the same amount and buys a couple of jetskis and an overseas holiday?
Really? Ok, I guess i can understand, i just found it interesting to see a lenders point of view. So a line of credit wouldnt work in my scenario if i am only using the dev site as security?
