Townhouse Development Finance

[D_One]

If you have 90% LVR on a property with DA approval for development of 3 townhouses, will the bank be willing to lend you more money to demolish existing building and develop the townhouses?

 

[Rolf Latham]

If you have 90% LVR on a property with DA approval for development of 3 townhouses, will the bank be willing to lend you more money to demolish existing building and develop the townhouses?

Hiya D1

90 % on current numbers suggests not enough equity, unless you can get the land value up a huge bunch for the 90 % lend to fly

Worth a look though

ta
rolf

 

[Aaron_C]

hmmm 90% would mean low equity so you need to put more cash in unless the land value is significantly higher due to DA but I doubt it.

 

[D_One]

This may sound stupid, but why does the bank care about the equity in the house when I would be expecting that they will lend on the end value of the townhouses on completion.

So your suggestion is to pump money into the offset until LVR is below a certain amount? What is a good LVR to have before applying for this type of loan?

 

[Peter_Tersteeg]

The banks also look at the downside. A half built house is worth less than the sum of its parts. If you or the builder get into trouble halfway through the bank doesn't want to be left in a negative equity situation if they have to liquidate.

Having said that, 90% for 3 units is possible. We've managed to finance as many as 4 at 90% LVR.

 

[Rolf Latham]

Having said that, 90% for 3 units is possible. We've managed to finance as many as 4 at 90% LVR.

Wont fly here though, 90 % on current land and hard costs will leave the OP high and dry, unless the land value is boosted to a huge amount

ta
rolf

 

[Rolf Latham]

This may sound stupid, but why does the bank care about the equity in the house when I would be expecting that they will lend on the end value of the townhouses on completion.

So your suggestion is to pump money into the offset until LVR is below a certain amount? What is a good LVR to have before applying for this type of loan?

Stupid no, not at all.

But assumptive yes, and needing to do a bunchmore

The max mainstream lend one will be able to get is approx 65 to 70 % GRV based on a ONE line valuation.

yes, there are some private specialist funders that can push this to 80 % ( on paper) but expect to bleed on rates fees and charges.

In either case, youd want some form of defined exit strategy being pre sales or a very strong end position, so you can get resi based "take out" finance.

ta
rolf

 

[Peter_Tersteeg]

Wont fly here though, 90 % on current land and hard costs will leave the OP high and dry, unless the land value is boosted to a huge amount

ta
rolf

Quite true. 90% on hard costs is possible, otherwise it's probably not.

 

[Aaron_C]

The bank is the one lending you the money. They have to protect their position if you go bankrupt and they have to sell a half-completed development...which is NOT an easy thing to do even in a good market.

 

[D_One]

Thanks for your replies guys. So what is a good LVR to go for a resi loan without needing pre-sales?

 

[JamieT]

The banks also look at the downside. A half built house is worth less than the sum of its parts. If you or the builder get into trouble halfway through the bank doesn't want to be left in a negative equity situation if they have to liquidate.

Having said that, 90% for 3 units is possible. We've managed to finance as many as 4 at 90% LVR.

I'm in the process of getting DA approval for 4 townhouses with an end value around the $2.2m. Land $350k with a build of around $1.1m! Income is not very high so I'm guessing going residential is out of the question. With commercial were looking at around 60% of end value or 80% of hard costs. Is that correct?

 

[JamieT]

Sorry D_One for highjacking your thread! Should have started another thread, sorry.

 

[D_One]

That's alright JamieT. Your question is still relevant to this thread. Is your land owned outright? Or there's a current mortgage on it? My own question is part of my DD on a property i'm looking at.

 

[Mick C]

Thanks for your replies guys. So what is a good LVR to go for a resi loan without needing pre-sales?

You going for standard hard cost? or GRV ( end value?)

 

[Mick C]

I'm in the process of getting DA approval for 4 townhouses with an end value around the $2.2m. Land $350k with a build of around $1.1m! Income is not very high so I'm guessing going residential is out of the question. With commercial were looking at around 60% of end value or 80% of hard costs. Is that correct?

Going commercial does not necessarily means your income or serviceability is automatically boosted up! Resi lenders will take in consideration your potential rental income, having said that commercial is def more "flexible"

Resi- Client needs to tick all the boxes of the lenders criteria
Comm- Lender are happy within reason and safe limits to be flexible, compared to an standard off the shelf product.

60% GRV is about right.
80% Hard cost is also about right ...now it comes down to the overall deal and your serviceability and what rates and terms your willing to pay.

P.s i would speak and work with a broker during this planning process too make sure it's financially possible. It be silly spending $100,000 on council and approval and not knowing if the bank is ok or not...

Regards
Michael

 

[Aaron_C]

65% of final GDV (minus GT) or 80% of hard costs is about right. For commercial there is no such thing as 'serviceability' per se it's more about the strength of the deal, the client and about the exit strategy.