looking for finance for sub-division

landlubber

landlubber

Hi,
We're working through "the process" for a small (about 40 blocks) sub-division in SE Qld. I believe we will need approx $2mill to put it all together fully serviced. Land with DA will probably value at about $1.6mill. based on other sales in area.

Can any forum member advise of well structured, low cost sources of finance for sub-divisions? Also, just how these deals are structured ??

Post or PM is fine.
Thankyou.
LL
 
Hi Landlubber...

>We're working through "the process" for a small
>(about 40 blocks) sub-division in SE Qld. I believe
>we will need approx $2mill to put it all together fully
>serviced. Land with DA will probably value at about
>$1.6mill. based on other sales in area.


Where is the project. $1.6m for 40 blocks?
That's $40k per block raw... bargain if retail is $160k+.


Development costs are about $40 to 60k per block for residential.
Civil works and council contributions... PLUS other costs.

ROUGH NUMBER ---
Land with DA and Operational Works = $ 1,600,000
Development costs $50,000 x 40 blocks = $ 2,000,000
Other costs (stamp duty, interest, etc) = $ 400,000

$4 million divided by 40 blocks = Break even at roughly $100,000

Retail price needs to be $140,000+...

Do these numbers sound right to you Mr Landlubber ???


- Ross
 
Ross,
Sorry if I haven't got the jargon right. Novice at this development stuff !!
Raw land cost was "negligible" to us. (12 acre block) . We own it outright.
It's zoned residential already.

We're proceeding with all the steps to get DA now. I guess all the "stuff''( noise impact, geo-physical, surveyors etc) will cost about $100K . We can finance that no problem.

We'll then be looking for the funds to put in the services (roads, sewer, water etc etc etc ) plus pay the council. I get told the same numbers you quote ($40K to $60K per block).

That's where we get just a wee bit beyond our current petty-cash box !! ...and hence why we'll be looking for funding.

When finished (retail, fully serviced) I'm told blocks will sell for "around" $110K to $120K based on other sales in the area . ( near Ipswich)

That's about it mate:)
LL
 
LL

There is no magic way to fund a sub-division. Most lenders work on Gross Realisation and lend against the completed value.

However as Ross mentioned if the break even point for your project is 100K a site and you are Grossing 110 - 120K pre marketing & holding cost, and GST I question whether the project is actually viable.

Last sub division i did we wanted minimum 20% + NP or would have walked away.
 
Qlds007,
Sorry ...again . :confused: (Communication is sure a fun topic ain't it ?)
The $100K is not "per block"....it's the (approx) total for the whole project to DA stage ...but no "construction".

$100K per block would mean $4mill just to DA stage ??? whoa there !!!

LL
 
Can you stage the subdivision in two or more stages, so that you're financing the subsequent stages from cashflow
 
hi jrc,
Would prefer to do it all "in one go" and just "get it done" .... but that will depend on the finance options/deals that are available.

LL
 
Landlubber,

Compared to your "small 40 block" subdivision I'm doing a "itsybitsy" 10 block subdivision on the south side of Brisbane.

There is more than one way to finance this, QLDs007 has said you can finance this on Gross Realised Value (GRV or completed value) which can open up heaps of options to you.

Depending on what LVR (against GRV) you intend to borrow will effect what rates you pay.

I intend on borrowing everything from the purchase price of the block (DA already in place), civil works, holding costs etc.

To do this my maximine LVR will be 72% of completed project value i.e. my interest rate will be lower than it would have been if I needed to borrow 80%.

I'm using a company called Australian Finance Solutions located in Brisbane north side, so far they have been very helpful. They are just one of a group of financers that do this kind of lending.

Because you own the property outright I'm sure you will find very favourable lending terms.

Mark
 
Thanks Mark

MarkC,
I think our thread has been hi-jacked ....but thankyou for the finance contact:) .
Our normal bankers are CBA and NAB so we'll be talking to them of course, but experience has told me they can vary from "way off beam" to "very conservative" depending on who you get to talk to :confused: bit of a lucky dip.
I've also heard that Suncorp can provide finance ( but they used to be our main banker until we just could not stand the admin. problems anymore) ....so I've got a few leads now. Good luck with your "10 blocker" ...happy to swap notes as the journey progresses.

LL
 
Oh yeah ... Suncorp would have to be super, super competitive to even get a "look-in" on this one. Been there and what goes round, comes round ...right ?

Thanks to all:) who have responded. This project will be "happenin' " just as soon as the good 'ol Ippy council blesses the re-config.

LL
 
Depending on what LVR (against GRV) you intend to borrow will effect what rates you pay.

I intend on borrowing everything from the purchase price of the block (DA already in place), civil works, holding costs etc.

To do this my maximine LVR will be 72% of completed project value i.e. my interest rate will be lower than it would have been if I needed to borrow 80%.

Hi Mark,

U say you are borrowing everything including the purchase price of the block.
Could u elaborate pse. How much deposit did you need to settle on the land? Or are u saying u borrowed 100%?

Thanks
Grant
 
Grant,

I'm borrowing 100% of all costs. Actually it's really around 99% a few costs I will wear along the way such as legal and accounting advice.

I'm even going to borrow the holding costs.

The maximine LVR I will be lending (against GRV) is around 72%. This still may vary depending on the final offer from my financer. I am expecting to be charged between 9% - 12% interest to do this.

Mark
 
Thanks Mark,

So how are you borrowing 100%.
Is it because of the profit in the deal, or do you have strong financials & strong track record?

I'm looking at a deal at follows
ie. raw land = 2.4mil 1.6mil dev costs
GRV of land 7mil

Ive always heard u need 20% deposit on the raw land first?
Are u saying I could borrow 100% based on the deal only?

Thanks
Grant
 
Grant,

In my case I managed to secure the land below market value, I don't think I would have much trouble having it valued 25% higher than the contract partly due to the DA on the land.

With a "blended" lending solution (low rate secured lending mixed with high rate mezzanine landing) I will be able to finance the deal without putting money into it.

Profits are reduced by the "Blended" higher rates and if I have a longer than anticipated holding time the risk of a cost blow out is also increased.

It's still better to have as they say "skin" in the deal. But it is possible to do this without your own money.

You can also finance this with traditional lending. Think about putting an option on the land first, lets say 5-10% of current land value (or less if you can) for a duration of 12 months (or longer if agreed). Have the DA completed within this time and then borrow against the property's new value.

You can get the 5-10% from private investors, ask around. My experience is that there is an unlimited supply of people out there who will give you money for a 10 - 20% return over 12 months (hell of a lot cheaper than paying rates on full value). Of cause I would encourage you do this with a contract drawn up by your lawyer and that you also act entirely ethical.

Don't let a lack of money stop you from making a stack of cash! Get hungry enough and you will find money in just about every place you look. You can even suggest a share in the profits with the vendor (obviously less than your share).

As for a track record, yep it helps. I spent 12 years as a cost/planning engineer in the oil & gas industry. I don’t' have a problem putting together a feasibility plan, project cashflow, total exposure estimates and project schedules. If your unfamiliar with these things team up with someone who can do this, learn about it or pay an accountant who can represent these things for you.

Hope this helps.

Mark
 
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