Property:Development:11.Financing
Summary
Each bank has expertise in different categories of risk. Based on their experience, some banks are comfortable lending for commercial development, others rural, others might be most comfortable lending for urban residential home loans.
Either way, your borrowing ability is largely dictated by your ability to service the principal and loan repayments for the duration of the loan. This is largely dictated by your disposable income, no matter the potential value of the project. i.e.:…what you earn minus your variable fixed expenses (rent + services + food + education) – all of which are variable and depend on how much you are willing to forgo immediate gratification, by moving into lower rent digs, buying less avocados, forgoing Netflix, and taking less night classes.
For example, forgoing Netflix ($20/month) allows you to borrow about 4000 more towards your house (better kitchen, downlights, whatever). So forgoing Netflix, using a smaller mobile plan, using a smaller fiber plan, and cutting out on maple syrup and pancakes every week means you can service another $15,000, which is enough for a second, simple, bathroom or small deck – both of which will add more value to your final house sale price.
Notes
Small changes = Large Impact
Your borrowing ability is largely dictated by your ability to service the principal and loan repayments for the duration of the loan, no matter the potential value of the project. This ability is largely dictated by both your job security combined with your disposable income. I.e.:…what you earn minus your variable fixed expenses (rent + services + food + education) – all of which are variable and depend on how much you are willing to forgo immediate gratification, by moving into lower rent digs, buying less avocados, forgoing Netflix, and taking less night classes.
For example, forgoing Netflix ($20/month) allows you to borrow about 4000 more towards your house (better kitchen, downlights, whatever). So forgoing Netflix, using a smaller mobile plan, using a smaller fiber plan, and cutting out on maple syrup and pancakes every week means you can service another $15,000, which is enough for a second, simple, bathroom or small deck – both of which will add more value to your final house sale price.
Combined Incomes
Banks see husbands and wives as a single (combined) unit of income. Which is great if you have two incomes.
On the other hand, if you have two partners, it doesn't move the dial at all. Banks will expect that either partner can service the loan on their own, in case one partner pulls out. Having a partner doesn't change how much can be borrowed – it just lowers the pain of paying – at least while the partnership lasts.
- Clear stated Mission (ie, ownership or profit focused)
- As clear as possible Goals and Objectives
- As clear as possible agreed Strategies and Tactics to meet Goals and Objectives
- Common Principles to guide decisions
- Defined Milestones
- Cannot sell interests in whole or part (limit entry of unknown partners) until milestones reached or abandoned.
- other partners have first option, at purchase price + agreed interest rate, before they are made available to other markets.
- if partnership is concluded, without sale, how will property be divided (note that in some cases this causes the subdivision to be below a minimum subdividable size, effectively snookering the other partners).
Interest Rates
- Are expected to remain low1) for some years – but it's worth remembering that it was only 10 years ago that interest was at 11%.
Banks
Each bank has expertise in different categories of risk. Based on their experience, some banks are comfortable lending for commercial development, others rural, others might be most comfortable lending for urban residential home loans.
- BNZ:
- Requires 20% down for rural land.
- Requires 10% down for development of new residence on rural land.