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Development Finance Application

 

Development or Commercial Funding is a very profitable and at the same time risky business to finance.

Australian Mortgage Centre first piece of advice for prospective developers is to remember that borrowing for development is very different from borrowing for investment.

Financing property development is a lot riskier for lenders and therefore their requirements are more stringent. If you don’t have much experience in the field, banks may have an issue advancing any funding. Until you get a good reputation or a good track record, you should either bring an experienced person into your development team – such as a project manager or development manager – or use a good mortgage consultant, “because they’re going to understand what the different lenders’ requirements are”.

Every lender also has its own ideas about what constitutes a feasible project. The level of equity required, the profit margins expected and the risks they are willing to take will vary widely. Some lenders draw a distinction between ‘residential’ projects and ‘commercial residential’ projects – the difference lies in the number of units to be built.

The finance submission should start with an executive summary, outlining the broad scope of the proposal and the amount of money required. A thorough feasibility study should come next – but you can’t just punch random figures into an Excel spreadsheet and then massage them until they show the required profit margin. You need to show your working.

To increase your chances of success, the suburb you’re looking to develop in must show strong demand and have good access to infrastructure and transport. Lenders will definitely take these features into account.

Once the lender is satisfied that the numbers look reasonable, the valuers will be sent out to value the Gross realisation value of the development. Unlike the valuation for a simple investment property purchase, the development valuation process is always exhaustive. A professional valuer from the bank’s panel of independent firms will be appointed, and they will certainly uncover any issues that could potentially derail the development project.

The valuer will go through the feasibility study with a fine-toothed comb and ensure that you have included all of your expenses. Even if you’re not planning on selling the project, they will include selling and agents’ costs, just in case you default and the lender needs to liquidate

Finally, even if a development lender does accept your application, unforseen errors could possibly leave you exposed to a cost blow-out or even a mortgagee repossession if these are not mitigated prior.

Return On Investment

Are you earning enough income from your investments?

Return On Investment

Generally income is the cash flow generated from an asset such as term deposits, bonds, equities and property. How much importance you and your clients place on receiving a regular income from your investment, can potentially affect your lifestyle.

People opt for less volatile, or defensive, assets such as term deposits and bonds, particularly during volatile times. While this makes sense, we believe you should keep an eye on the income you are receiving from these investments.

[box type=”shadow”]How is income calculated?

• Term deposit:

    The income from the term deposit is known as the interest rate. It is calculated by dividing the cash flow by the value of the investment.

• Share in a company stock:

    The income from the share is known as the yield. It is the annual dividend paid per share as a percentage of the share price.

• Residential property:

    The income is known as the yield. It is the annual earnings from rent as a percentage of the property’s value.

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Don’t forget about the impact of rate cuts on your investment income!

At AMP we believe that defensive assets can be an important anchor for your investment strategy, they can provide stability and a regular income. Don’t forget that Term deposits and savings accounts that were paying more than 6% pa a year or two ago, are now paying less than 4.5% pa¹. So for every $1,000 you would have received from a term deposit when rates were 6% pa, you would now only receive $750 at a rate of 4.5% pa.

Shares as a source of long-term income

Shares can generate income for you when the company pays dividends to its shareholders. The advantage of this is that if the company is continuing to make a profit, you may receive a regular income, which is generally paid on a half-yearly basis.

As investors, we tend to focus on the capital growth potential of shares rather than the income they provide.

However, Australian shares have proven to be a good source of long-term income through dividend payments.

Article Source: Homeloans