澳洲Australia property Funding Developments | Sydney


在澳大利亚 Hi all, I currently have a PPOR and 10K cash in the bank which I plan to use as a deposit for a IP early next year. Is it possible for me to place this into my PPOR loan and then redraw the 10K when Im ready for the IP and then claim the int Hi Guys, Ive found a property that has mentioned two payments coming up of $1400 to apparently top up the admin fund and 2 have just been paid. Im looking at a financial statement (basically a balance sheet) for the strata and its all a bit


There's been a lot of posters lately talking about doing developments, but not much discussion about how to fund or exit these developments.

I'd like to pose an open question to everyone who has done it/is doing it:

1. How did you fund the development?
- From cash, borrowings on the future value of the development, through family/friends or in JV with a developer

2. What were the pitfalls you were not expecting?

3. If it has been completed & sold/rented
- How did you exit & why?
- would you do a development of that size again? (or do a bigger one next time).

I've very curious to find out peoples's experiences.

Cheers,

Aceyducey  

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I too would be very interested in other peoples knowledge and experience in developments. As I have 10acres of land in rural victoria(just outside geelong) that I plan to development in the not so near future.  

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Hi Aceyducey,

We have 2 devs going, and 2 in the pipeline. I'll try to answer some questions here....

Originally posted by Aceyducey

1. How did you fund the development?
- From cash, borrowings on the future value of the development, through family/friends or in JV with a developer
Click to expand...

Each development we do is funded by 20% of our cash and the rest is borrowed funds from the bank. The bank looks at the land cost (as per their valuation) and the total construction cost (as per their own QS report), plus extra for professional and council fees (as per our estimates), and will lend 80% of the total. In some instances the bank will want pre-sales; they will ask for this if they are unsure of the area. Or, instead they may ask for more equity.

The bank will look at the whole project cost and the projected sales, and will expect that you make a certain % margin. If you do not, they will unlikely fund it, or again, ask for more equity or presales.

Originally posted by Aceyducey
2. What were the pitfalls you were not expecting?Click to expand...
Valuations and QS reports are the key, and the biggest possible let downs. Make sure your bank's valuer is GOOD.

We bought some land for $550k subject to DA which was fine (it worked out at $43k per unit). Land is worth more once the DA is approved. We arranged the finance in 2 stages. Stage 1 for the land once DA was issued, and stage 2 for the construction. So, we settle on the land no problems. The value came in at the purchase price. Everyone happy.

Then we go to finalise our construction finance and the bank arranged for their valuation on the whole project, which is normal. The bank appointed that same valuer, and the shithead went and valued the land as only $50k more than it was without the DA, when sites down the road were selling for $75,000 per site. Our site should have been valued at $975,000. On top of that, the valuations for the resales were ultra low!

Then, the bank gets their own QS to look at the construction figures. They come up with the total cost $200k more than our calculations. Try and get them to review their figures!!!! Eventually they did, although it was touch and go for a while.

The bank got shaky, but still funded the deal, it just meant that we had to inject an extra $300k into the whole project - which is a pain.

What we ended up doing is wearing the extra cash they wanted, and after a few months we got the bank to appoint a different valuer and revalue to whole project so we could get our equity back out.

Originally posted by Aceyducey

3. If it has been completed & sold/rented
- How did you exit & why?
- would you do a development of that size again? (or do a bigger one next time).
Click to expand...
Our strategy is to sell everything except one or two in each project.

The particular project above has been completely sold OTP except for the one's we're keeping. Another one we did in Hurstville (a small block of 6) is completely sold OTP (again, except 1 we kept)also. I would never do a block of 6 or even 10 or 12 again. They are too small and too many headaches. You have the same headaches building a block of 6 as you do building a block of 22, so no less than 22 in a block for us now.

Hope this helps a bit.  

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great post Joanna.

just a question:what would be the minimum land size for 22 units?

Darren  

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Yeah i agree! Excellent post! some very useful feedback for anyone considering developments................................
Thats whats soooooooooo great about these forums, people are charging thousands $$$ for info we can share and benefit from mutually.
thanks, add.
:) :) :) :) :)  

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Joanna has covered the question really well so my reply will be brief.

We ususally put 20% into a project - our own funds and the bank funds the rest.

Currently banks are getting edgy about property developement and are starting to change the rules. They are more comfortable with developments of 3 or less units or borrowings of less than $1,000,000. For these they do not usually ask for outside valuations or a QS.

Above this level they call the project "commercial" and are requesting 30% equity up front and an independant valuer and often a Quantity Surveyor to confirm building costs.

They also look at the experience of the developer, so JV's with experienced developers or using a project manager definately helps.

As for pitfalls.

Joanna is very right about valuers. It helps to have a valuer and QS on your side and we tend to instruct them rather than the bank, but we must use someone on the bank's panel. They won't do you any great favours but just like with any other consultant, as you build up a relationship you can discuss their report with them and provide some input. I always review their reports with them before they submit their final report.

Other pitfalls - cost over runs and funding them as the bank won't ususually extend the loans above the original amount. The developer must fund these. protect yourself with a fixed time and price building contract.

Exit strategy
I try and keep as many projects as possible - we fund them by refinancing the project based on the end value and can usually get 80% finance which covers the project cost plus sometimes a little cash left over.  

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Originally posted by beech
just a question:what would be the minimum land size for 22 units?
Click to expand...

Hi Beech,

Our next site is around 1,235sqm. This has been DA approved for 22 residential units plus 1 small commercial shop and parking, over a total of 5 levels. But of course, this also depends on the zoning and FSR (floor space ratio) and height restrictions of the land.  

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For a unit zoned block the FSR's that my councils could use are :

FSR 2:1 and your doing 2bedders ?

or

FSR 1:1 and your doing 1 bedders ?

Again the disclaimer - I know nothing about areas other than the ones Im active in.....

Anyone know any LGA's that have higher FSR's ?  

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About funding developments,

I currently work with a large commercial mortgage origination firm in Sydney, and there are two methods to approach Development Finance. One is the one described above, i.e. Bank lending. Although less risky, the Banks are more pedantic, will give you less money, and will want more security.

The alternative is through other institutions and private lenders. We specialise in this type of lender. These transactions can lead to 90-95% lend on total costs if structured properly, and depending on the deal. The lenders are also much more flexible and approachable. There is a price to pay though, and that is the interest rate. However, if you are a serious developer, teh extra equity you retain will allow you to do another deal and make even more profit.

Generally, teh major traps are the Valuation, the QS, and right now, Home Warranty Insurance.

Send me an email if you need any help.  

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