Pensioners as developers

[Lissy]

Hi All
Just thought I'd run a scenario by the finance wizards in here and see what you can come up with.
My mum and stepdad own a large block in Melbourne. They've now got permits to subdivide and build two units. Eventually they want to sell one and live in the other.
So it's now a question of finance to fund the development.
They are both pensioners.
Land is worth approximately $400,000 (no debt)
Expected building costs $420,000
Estimated value of completed units: $1,000,000
What sort of finance options do they have? As pensioners they obviously have no income for serviceability!

 

[Rolf Schaefer]

Hi Lissy,
generally speaking there should be no problem to fund this as a project. Are they self funded retirees, or where will the money for serviceability come from?

 

[Lissy]

Hi Rolf
Well, that's the sticky point I guess - there is no money! They are pensioners with no other income.

 

[agent007]

Originally posted by Lissy
Land is worth approximately $400,000 (no debt)
Expected building costs $420,000
Estimated value of completed units: $1,000,000
What sort of finance options do they have? As pensioners they obviously have no income for serviceability!

Hi Lissy,

I guess that serviceability should not be an issue since they fully own the land. They may use the Navra structure (aka cash bond) for this purposes. Then, find a loan from an institution that lends money based on estimated value of the project (no current value).
I'd suggest that you better approach S. Navra. He may be able to assist them. In the workshop he delivers, he explained how he helped a pensioner in similar situation.
BTW, I have no associations with him or his organisation.

Regards,
James.

 

[Freedom]

Lissy,
Hava look at this site - this is not a recommendation, just a site I found in an Internet search.

They say they will do asset based lending at two/thirds of valuation at 7.x%. Sounds reasonable?? Solicitor's first mortgage funds.

http://www.fussfreefinance.com.au/

What do you think? What are the problems with this form of finance? Lack of flexibility? May suit pensioner parents?

 

[bundy1964]

I think they could be useful

2nd mortgage rates are a bit but they would let me go to 80% LVR if I needed too. ( would sit outside my comfort zone if I had to do it for anything but a short term fix )

Would practice my google, ASIC and austlegi skills before doing business with them though

bundy

 

[manny]

Hi Lissy,

can u approach builders about drawing up a contract (with the help of a good solicitor), where at the end of the building completion, they just keep one of the townhouses & your folks the other... In other words, ur folks wouldn't have to spend a cent on this project, just move into the one when its completed & the builder gets his/her money upon the sale (so if building costs were say $420k & added bits & pieces ur folks wanted thrown in, ie. curtains, gardens, paving, etc..) & they sell for $500k you both win...

ur folks should then be able to retain their Centrelink payments & entitlements (as they didn't sell anything, just part of the home upgrade) as they didn't make profits, etc...

Reason for me following this angle is for them to retain their full Centrelink entitlements (which would be hard to do so if they took out a loan & hung onto both)... & also would be more comfortable for them to remain debt free...

Cheers,

MannyB.