Reval at end of construction to take our security?

[westminster]

Im hoping I make sense here.
Background is that our Quad development loans (40% fixed, 60% variable) have 2 villas for equity and are being used as security for our quad development.
I would like to free them back up to use for another project one day so I'm assuming after construction I would ask for a re-evaluation of the quad houses to see if we can free them up.
However reading here I see that valuations will often simply be the land plus build price therefore I won't have gained any equity.
I guess my questions are:
- is this what people normally do to release equity?
- is there any advantage to leaving the villas as security and using equity in the Quad to finance another deal (I'm thinking this is not ideal and simply causes a messy chain)
- umm any other advice you have in this area.
Thanks!

 

[Aaron_C]

Once the project is completed the quad development will be valued as individual houses on separate titles, which should have a higher valuer than land+costs (Assuming you strata them).

 

[Steve Fitz]

Did you get the original valuation done before or after the subdivision?

If it was before then you've likely increased in value with your subdivided block. If it was after then you're probably right in saying they won't recognise an increase in value.

 

[Rolf Latham]

Higher value often

Take out finance isnt always straight fwd, BUT because urs is already on resi terms it willbe easier

Quite often in your scenario,we would leave say 3 crossed and strip out the4th for an equity release.

If possible, obviously you look to uncross the retaineds, but that can be problematic with some lenders, or there is a fixed rate in there as well
t
arolf

 

[westminster]

Phew - I thought I had it right in my head but then I was reading the valuation thread yesterday and it got me worried.

Yes, Aaron, we'll be strataing once they'll be built so hopefully this time next year we'll be finished and titled and then we'll get them valued again.

Thanks, Rolf, it would be great if we could free up one of them.

 

[Aaron_C]

Well who knows what valuers will say once the project is completed...it really is just up in the air. Just as long as you make a profit out of it, hopefully it will all work out.

 

[westminster]

N00b question of the day.

I'm trying to learn about cross collaterilisation on the forums - I keep on seeing 'it's a bad thing' so I want to learn about it.

Am I cross collaterilised?

Trust owns IP 1, 2 and 3. We used 1 and 2 as security for Project Gwelup (building 4, 5, 6 and 7)

Is that cross collaterilisation?

I've been reading old threads but I'm still befuddled.

Thanks!

Should I have structured it differently? I'm changing my sig back to L Plates

 

[Aaron_C]

Are all the loans with Heritage?

 

[Ausprop]

pretty depressing tho when you do a devy and the market moves against you and the bank asks you to inject cash! or worse...instructs you to sell into a weak market

 

[Aaron_C]

pretty depressing tho when you do a devy and the market moves against you and the bank asks you to inject cash! or worse...instructs you to sell into a weak market

The old adage comes to mind: "A banker is someone who holds up the umbrella when the sun is out and takes it away when it starts to rain"

 

[Rolf Latham]

N00b question of the day.

I'm trying to learn about cross collaterilisation on the forums - I keep on seeing 'it's a bad thing' so I want to learn about it.

Am I cross collaterilised?

Trust owns IP 1, 2 and 3. We used 1 and 2 as security for Project Gwelup (building 4, 5, 6 and 7)

Is that cross collaterilisation?

I've been reading old threads but I'm still befuddled.

Thanks!

Should I have structured it differently? I'm changing my sig back to L Plates

If you are asking, Id make a good bet you are , its usually a give away.

Your loan documents would show specifically what loans are secured to what property

ta
rolf

 

[Peter_Tersteeg]

N00b question of the day.

I'm trying to learn about cross collaterilisation on the forums - I keep on seeing 'it's a bad thing' so I want to learn about it.

Am I cross collaterilised?

Trust owns IP 1, 2 and 3. We used 1 and 2 as security for Project Gwelup (building 4, 5, 6 and 7)

Is that cross collaterilisation?

I've been reading old threads but I'm still befuddled.

Thanks!

Should I have structured it differently? I'm changing my sig back to L Plates

By using properties 1 & 2 as securities for further properties, that would almost certainly meet the definition of cross-collateralisation.

As mentioned, your loan offer documents should tell you, but another way of verifying it is if you got an LVR higher than 80% and did not pay mortgage insurance.

 

[westminster]

Are all the loans with Heritage?

Trust owns 1, 2, 3 outright - no loans on them
1 and 2 are security for Gwelup Project (which will become 4, 5, 6 and 7 when stratad)

So yes my Heritage loan documents say

Loan 1 (this is the land)
Security Westminster 1
Westminster 2

Loan 2 (construction)
Security Westminster 1
Westminster 2

Can I hit myself in the head?
I kept on thinking that X-coll was using one property's equity to fund more than one IP. And I was thinking "geez I'm not doing that, what if one falls over etc" then I went "uh oh idiot, that is probably exactly what you've done"

My plan was to reval after Strata to try and get at least one of the Westminsters off.

 

[Aaron_C]

Yep you are most likely cross colletaralised then. Best way to check is to get a title search on properties 1 and 2. You will definitely see a mortgage on them confirming it.

 

[westminster]

So........
What can I do to minimise this?
Is there a 10 step programme for losing Xcoll?

 

[Aaron_C]

Well, your broker who got you the Heritage loan should've structured it properly. In any case, since you are just about to start construction, it's going to be difficult to uncross them unless you refinance them to another lender or put more money into the deal to give Heritage comfort. This is because other lenders will assume you have this massive construction+land loan with no rental income to service it.

 

[westminster]

Well, your broker who got you the Heritage loan should've structured it properly. In any case, since you are just about to start construction, it's going to be difficult to uncross them unless you refinance them to another lender or put more money into the deal to give Heritage comfort. This is because other lenders will assume you have this massive construction+land loan with no rental income to service it.

Hmm yes they should have. Probably my fault in not knowing what I should have been asking for and the rush we were in not to lose the property when we had to sack our first incompetent broker.

I'm happy with things as they are for now but I will need to start steps to untangle once the houses are finished.

 

[Aaron_C]

I don't know what your situation was at the time but sometimes x-cross lets things be done quickly to avoid delays to lose a deal etc. Otherwise it would require more work to co-ordinate, especially if there is to be simultaneous settlement between 2-3 different lenders. Easier for the broker and banker to just chuck all 3 securities together in one loan.

 

[Rolf Latham]

Hmm yes they should have. Probably my fault in not knowing what I should have been asking for and the rush we were in not to lose the property when we had to sack our first incompetent broker.

I'm happy with things as they are for now but I will need to start steps to untangle once the houses are finished.

A partial release can sometimes be simple, and sometimes be like unscrambling an egg.

right now, I would SIT and CHILL and get to separate titles and then look at whats doable.

t
arolf

 

[westminster]

Chillaxing away
I wasn't expecting to fix it now, just needed to confirm I was x-coll and what I might need to do later on.
I shall ask more questions in 12mths and keep my L plates firmly on.