What sort of cash do I need?

[bam*bam]

Hi to all out there. I was after some help. Looking at starting another building project and was wondering how to finance it. Stats are below:

Buy price 1mil (land with permits for 10)
Build cost 1.1mil (already have build quote)

3 pre sales at $350k each with 10% deposits. (so safely say 3.5 mil complete return)

I currently have $250k to cover costs (inc stamps) and obviously deposit.

Question is, would I get a loan for the complete build cost if I use all my cash on a deposit? Or should I put down a smaller deposit and have some cash reserves for when the building loan would kick in?

Thanks for any ideas in advance.

 

[The Sniffer]

I would say you need min 20% of land, 20% of build price, and 20% of any other costs. That is assuming your are an experienced property developer.

Land 1,000,000
Build 1,100,000
Interest 200,000 (taking a punt)
Misc 100,000 (bank will allow say 5%)

Total 2.4M

Depoist (minimum) 20% of total cost =$480,000

Note: banks can lend up to 80% of all costs (including soft costs, stamp duty and interest etc) on the basis of you stay within say 60% of end value.

Pre-sale to equal debt cover e.g. 1,920,000 (assuming you borrow the 80% of total costs). 3 won't be enough.

You will also need experience with similar size developments.

Failing that you need to go for a non bank (private) or find an investor.

On the surface you are a long way off in terms of a mainsteam bank.

 

[Ms Jade]

3 pre sales at $350k each with 10% deposits. (so safely say 3.5 mil complete return)

Do you have these already or what is it based on?

 

[Ms Jade]

Note: banks can lend up to 80% of all costs (including soft costs, stamp duty and interest etc) on the basis of you stay within say 60% of end value.

Pre-sale to equal debt cover e.g. 1,920,000 (assuming you borrow the 80% of total costs). 3 won't be enough.

You will also need experience with similar size developments.

This is good info Sniffer. A couple of questions:
- Is the standard practice to require pre-sales equivalent to the whole debt cover?
- Without similar experience, is it possible for the OP to obtain funding at a lower LVR and, if so, what is that likely to be?

Thanks

 

[bam*bam]

response

Just to answer a few questions. We have previously done larger scale developments using the same bank.

The property will be bought with the 3 pre sales already made.

I was thinking maybe buy the property at 95% LVR which will leav enough money for a 20% on the building plus resales to help it through.

What do you think?

 

[Marty McDonald]

No good..as sniffer stated they will look at the LVR at he land stage as well 80% max with banks. Non bank lenders while being able to finance say 70% of the end value (which may be higher than 80% of total costs) will also require the LVR at the land stage to not exceed the 70% level. You need more cash in the deal.