Development Finance

From: Patrick Bruadair

Does anyone know how much banks (or other financial institutions) will lend for small developments, as opposed to retail IP purchases. I have come across a pretty good 5-6 unit site with an old house, ripe for demolition. Price around $250,000 + purchase costs. Costs (incl design, management etc)for constructing a 5 unit (townhouses)development are estimated at $710,000 excluding interest holding cost. The costs are pretty accurate and are from a similar development just completed a few streets away. The broker I am dealing with says it becomes very difficult/impossible to get LVR greater than 70% if the development is for more than three units, and also that banks may want you to show evidence of pre-sales. I actually would like to develop and hold, not sell, so I couldn't show this evidence.I would also like to maximise the loan amount (80%if possible).

Anyone got any experience with a similar scenario?


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Reply: 1
From: The Wife


I am not a broker so I wont get involved in that part of your post, Im sure one of the excellent brokers on this forum will be able to give you more information, Rolf??

What I would like to suggest, to you and to so many others I have spoken to recently, who are looking at doing something much bigger than they can cope with, and that is, get a money partner, or some kind of joint venture going.

It is far better to get 50% of something than 0% of nothing. Dont spend to much time bemoaning the fact that you cant do it, ( thats IF you cant , check as many avenues as possible as quickly as possible) and then get some help,

This is the forum to ask for help, post the deal in caveat emptor ( not the address of course , just the basics,) and ask for expressions of interest, you may be surprised at the amount of people who will ask for more details.

By performing your deal with partners , you are doing several things,
1. You are giving yourself credibility, not only with the bank, but with the industry in general,

2. You are learning how to do it with a minimised risk, ( a bill halved is better than the whole thing ;o)

3. You are climbing the ladder the way you should, one rung at a time, and by performing the deals jointly, you are working up your cash basis to perform them on your own.

I'm sure there are more benefits will be able to see, I have seen so much good talent go to waste because they would rather " take all the profit themselves" and therefore never get of the ground.

Good Luck with your venture, hope a broker can help you, if not , hope to see you in 'caveat emptor'

Cheers, TW
~Life is a daring adventure, or nothing at all~
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Reply: 2
From: Rolf Latham

Hi Patrick

Unfortunately this transaction is commercial in nature. It therefore carries greater risk than a normal owner occupier development and therefore the lower LVR.

If it were a duplex you could even get 90 % in some instances.


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Reply: 2.1
From: Juzz O'K


I agree that the banks would view this
as commercial in nature. Therefore 70%LVR.
Much more research is required here.
ie will not Lend if Town Planning Approval
is not issued.
Ask for it in writing.
Much wasted time & effort & sometimes
money occurs if it is knocked back.
Make sure you work on it with people who
have the experience & credentials.

Best of Luck
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Reply: 2.1.1
From: Patrick Bruadair

Thanks for the response folks. Helpful to know that 70% LVR is about the best I can expect, at least I can evaluate further on that basis. As you suggest TW, I'm also exploring the option of a joint venture arrangement with some acquaintances.

many thanks again

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