Reno for profit financing... Help!

[ArJay]

Hi Folks,

My Father-in-law and I have chucked in our jobs and have been renoing for profit over the past 8 months full time. We're just about to complete our second project which should make a respectable return. Our first was fairly successful and it's a path we're enjoying and are intent on making work.

The reason for this post and why we need your help tho, is that we are having troubles financing our projects.

At the moment we're financing the purchase, sale and reno costs through cash and lines of credit set up before leaving full time work. This definitely makes financing easy but is restricting what and where we can buy as we only have access to limited funds.

Have been to see a broker recently. All our purchases are going through a trust structure and he was unable to help us until we can show 2yrs income.

Does anyone know any alternative routes of finance that we can inquire into?

Would we qualify for anything like a commercial lend etc?

Thanks
Rory

 

[D.T.]

What other incomes do you have? ie just the project profits?

Any other dividends, rents, side businesses etc to report?

 

[Rolf Latham]

even with 2 years of income wont be easy, unless its not treated as cap gain income

ta
rolf

 

[ArJay]

The incomes we have at the moment are from our projects as well as wife and Mother-in-law's part time incomes.

Rolf, we treating the purchases as stock on hand on advice from our accountant so no cgt.

Any creative input more than welcome. How do developers finance their projects? Would this be an avenue we could pursue?

Thanks,
Rory

 

[Rolf Latham]

get an investor on board for a share of income ?

ta
rolf

 

[ArJay]

get an investor on board for a share of income ?

ta
rolf

Thanks Rolf,
Yes it's an avenue we've discussed but was hoping we could go through other means first if possible. Try to keep things simple and profits in house so to speak.

That said, I guess if it gives us the opportunity to get into deals with a better profit margin then might be worth looking into...

Rory

 

[jonmardell]

If you are running it as a business you have gone from PAYG to self employed and most lenders want 2 years tax returns. There are some lenders that will work on 1 years tax returns only. If you have only been doing it for 8 months then your 2013 is probably not going to look healthy as only several months included. Without know all the details it looks like you are going to have to wait until the end of this financial year to obtain standard residential lending. If you are looking down the commercial road i think you are going to have the same issues as the bank will look at your experience and past projects and 2 is not going to be enough. There might still be some other options out there but the interest rates are going to be expensive and eat into your margins.

Hi Folks,

My Father-in-law and I have chucked in our jobs and have been renoing for profit over the past 8 months full time. We're just about to complete our second project which should make a respectable return. Our first was fairly successful and it's a path we're enjoying and are intent on making work.

The reason for this post and why we need your help tho, is that we are having troubles financing our projects.

At the moment we're financing the purchase, sale and reno costs through cash and lines of credit set up before leaving full time work. This definitely makes financing easy but is restricting what and where we can buy as we only have access to limited funds.

Have been to see a broker recently. All our purchases are going through a trust structure and he was unable to help us until we can show 2yrs income.

Does anyone know any alternative routes of finance that we can inquire into?

Would we qualify for anything like a commercial lend etc?

Thanks
Rory

 

[ArJay]

If you are running it as a business you have gone from PAYG to self employed and most lenders want 2 years tax returns. There are some lenders that will work on 1 years tax returns only. If you have only been doing it for 8 months then your 2013 is probably not going to look healthy as only several months included. Without know all the details it looks like you are going to have to wait until the end of this financial year to obtain standard residential lending. If you are looking down the commercial road i think you are going to have the same issues as the bank will look at your experience and past projects and 2 is not going to be enough. There might still be some other options out there but the interest rates are going to be expensive and eat into your margins.

Thanks Jon,

That's great input. When you say some lenders only require only 1yr tax returns, are these more your non conforming/non bank lenders? Do you have any recommendations as far as who to approach here in SA or which institutions have these criteria?

Guess we may have to wait until a few more projects are completed by the looks. There is a chance a family member may be able to come in as a silent investor which might fill the gap in the meantime.

Thanks again,
Rory

 

[Aaron_C]

That's great input. When you say some lenders only require only 1yr tax returns, are these more your non conforming/non bank lenders? Do you have any recommendations as far as who to approach here in SA or which institutions have these criteria?

The majors like ANZ and St George look at 1 year financials but it would be a tough sell as you would be effectively discharging their mortgage every year.

 

[jonmardell]

As aaron mentioned above ANZ is one of the better ones working on 1 year only.

Thanks Jon,

That's great input. When you say some lenders only require only 1yr tax returns, are these more your non conforming/non bank lenders? Do you have any recommendations as far as who to approach here in SA or which institutions have these criteria?

Guess we may have to wait until a few more projects are completed by the looks. There is a chance a family member may be able to come in as a silent investor which might fill the gap in the meantime.

Thanks again,
Rory

 

[Rolf Latham]

As aaron mentioned above ANZ is one of the better ones working on 1 year only.

having said that, your income levels better be good since ANZ serviceability is towards the bottom of the pack unless you only have one property to lend against

ta
rolf

 

[tobe]

Im pretty sure the lenders that accept the most recent years tax return need an ABN registered for more than 2 years. So while technically, you can have a loan approved with one years tax return, it cant be your first years tax return.

I think its important for the OP to realise they are not eligible for residential finance rates. They may obtain development finance, or something similar (such as non conforming).

These sorts of finance comes with a higher rate, and hefty upfront fees.