Development Finance Numbers
This information is about the numbers of development finance. How to work out your borrowing capacity, the returns you need to make and the pre-sales requirements.
So that I can shorten a few important terms when I lay this out, I’ve listed below some of the common language you will here when discussing developments and financing:
Now that we have that out of the way, lets get down to business.
I have put together a table for you below which you follow along using your own numbers for your project.
|Gross Value = 10 x $400,000 (GRV) (A)||$4,000,000|
|Less GST||$ 363,636|
|Less Sales Comms @ 3% of $4m||$ 120,000|
|Net Realisable Value (NRV) (B)||$3,516,363|
|Total Development Costs (TDC) (C)||$2,800,000|
|NRV x 65% = Loan Amount OR (D)||$2,285,636|
|TDC x 80% = Loan Amount (E)||$2,240,000|
|The Lower of (D) or (E) (F)||$2,240,000|
|Equity Required = TDC (C) less Loan Amount (F)||$560,000|
To establish the amount you can usually borrow, work out how much your NRV is by taking your GRV, take off the amount of GST payable and then deduct the amount of sales commission you will pay.
As a rough guide to work it out manually, take the GRV, divide by 11 and multiply by 10. Then take 3% of the GRV and deduct it from that number.
This is your NRV.
Banks and financiers will usually provide you with either 65% of the NRV OR 80% of your TDC, whichever is the lower. (can’t be taking any risks now can we!)
So, once you have this number, deduct it from your TDC, you will then know how much equity you have to provide in either cash or land value. In the above example, the amount is $560,000