Development private financing - anyone with experience please?

Hi all,

As some of you may be aware I am in the early stages of a unit development in Bendigo.

As part of this I am looking at funding options. Normal options are up to 80% of build costs or up to 65% of GRV.

I am also looking at private investors and have been thinking around structure and the like.

Does anyone have any experience in this field? What types of returns are sought and with what conditions?

Would be interested in anyone with experience in this please. I would be seeking up to $300k cash for the project.

Cheers

Ben
 
Hi Belu,

Yes have experience in this area.

Private funders will consider your project to a maximum 70% of GRV but much depends on the strength of the project itself and the experience/A & L's of the borrower, pre-sales,etc.

Since the banks have clamped down private funders/investors are getting alot more "quality" deals come across their desk and they can literally pick and choose and are.

Most of the more flexible lenders of the past(debenture/mortgage funders like Bridgecorp, Fincorp, Donnovan Oates, MFS,etc,etc there were a whole heap) have literally disappeared over the last few years. For any funds still in existence and with avaialble funds they can afford to wait for the quality/stronger deals and there are plenty of them around thanks in most part to the banks. I know some private investors who are charging a premium on 1st/2nd mortgage loans because they know they can get away with it and developers dont have much alternative if they want to get their project of the ground. Simple matter of supply and demand and there is BIG demand for money at present.

If your looking to raise capital and only $300k I presume your project is relatively small. Investors expect different returns there is no set rule it all boils down to a deal by deal basis and ultimately the structure/security of the deal and how you pitch it.

For instance, are you needing seed capital to assist with DA, soft costs,etc which is generally unsecured? Do you own the land already?
what type of security can you offer?
Is it a stand alone deal or do you have other property your wiling to offer as security for the investors?
what will the LVR be once you add the $300k on top of the senior debt as second mortage?
Once you offer your 15-25% returns to investors whats your feasability staring to look like?
and on and on and on

The investors I deal with who are generally sophisticated investors/wealthy individuals/groups will want a return of at least 18% per annum for mezzanine/second mortgage money but on average 25%pa. As stated much depends on your own experience, the strength of the project itself, security offered if any, and how you can mitigate the risks for the investor eg pre-sales, additional security

Some will invest sometimes and like the project and structure it so their investment can represent a discount off an apartment once the project is completed, or may just take their interest earnt as a discount. There are others happy to be equity partners and take on the full risk but will command large profit share of the project.

On a deal your size in that location(no offence to anyone who lives in Bendigo) your better off trying to find one investor who is willing to back you for the entire amount. If you dont have alot of experience however, and your feaso isnt showing a acceptable profit margin maybe your immediate circle eg friends, family, will be willing to assist. However, getting family and friends involved can get very ugly if things turn bad its important to treat them like any other investor and give them a realistic and fair proposition.

You can raise a maximum of $2 million in 1 yr from no more than 20 investors without the need to submit prospectus,etc.

And if its a sophisticated investor no dramas at all. You only need $300k so your okay as far as compliance just a matter of being clever with how you structure your deal to make it attractive to potential investors. But you have to be realistic about your own strengths and weaknesses, and just how good a project yours really is. You have to put yourself in an investors shoes and see it from their perspective.

who are you? whats your experience and do you have resume of past projects/experience to get the job done? Are you financially very strong and is your personal guarantee really worth much? Have you had others review your feaso/project is it really a cracker site? You need to ask the hard questions and when you can you will be better placed to tackle your funding requirements.

why dont you share the details/numbers of your project and let some of the experienced forumites comment and give feedback, who knows you may even convince some to buy a unit off the plan if your convincing enough, meaning some risk mitiagted for lender or investor already :)

Good luck.


Darren


Hi all,

As some of you may be aware I am in the early stages of a unit development in Bendigo.

As part of this I am looking at funding options. Normal options are up to 80% of build costs or up to 65% of GRV.

I am also looking at private investors and have been thinking around structure and the like.

Does anyone have any experience in this field? What types of returns are sought and with what conditions?

Would be interested in anyone with experience in this please. I would be seeking up to $300k cash for the project.

Cheers

Ben
 
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