GRV vs Total Cost Ratio Part 2)

Following from last posting, we will now describe another way of construction loan finance for a property development.

Method 2) % of Total Cost Ratio

This method is the more traditional way of commercial lending. Typically development loans may be based on a 70% of Total Cost of the Property Development Project.

i.e.
Land $1m
Build Contract (ex GST) $1m
Other $300k
=
$2.3m Total Cost x 70% LVR = $1.61m Total finance available for the project.

Currently banks are playing a little conservative and may bring this ratio down to 65% LVR, which means less funding available.

In comparison with GRV method of lending, the Total Cost Ratio LVR in most cases will be less than the Gross Realisation Method (GRV).

Where do I go for advice?
Its best to ask a specialised property development mortgage broker for advice on which is the best for your development project. For Australian development projects, we recommend www.planassist.com.au for any sized development loan advice.