This section explains in detail the method to calculate the timeline for your development project.
There are a lot of factors involved in calculating the timeline for your project. It involves the time taken before you start the construction, i.e., the time between settling on a block of land, signing the contract for it, and starting the construction. This happens if your zoning is not ready yet then you will have to go through a planning process, you will have to get all your reports ready, you will have to go consult different professionals to get their approvals, and then go through your local government authority in order to get an approval for the development.
So during that time, you may have settled on a block of land or you may not have so you need to figure out what that holding period of that land is actually going to be.
There are two different types of financing. The first type is for buying an investment property and the second type is for construction. The rate of interest for the two types will be different. The rate of interest may be less for a loan to buy a property and hold it, whereas it may be a little higher for a development project because it could be a commercial loan depending on the size of the development.
Hence One Minute Feaso has two time periods. The first one is the holding period before you start construction and the other is the construction period.
Finance - Land (Holding Period)
The Finance - Land (Holding Period) section allows you to calculate the loan that you can borrow during the land holding period.
The idea of doing development is to use as little of your own money as possible because the less money you use of your own the greater return you can get on your own money. If you are doing your entire development with your own money that means you have already bought a block of land. For example, you have ancestral property and all the debt is paid out. So you have your own money to start the construction. It is still not advisable to use your own money. It is always best to borrow the money else your development margin will be exactly the same as your return on equity. So, you should leverage by borrowing the money needed for construction and pay the cost of borrowing.
1. To calculate the amount required for the landholding period, enter the percentage of Land Value that you can borrow to buy and hold a property while you go through the planning process in the Land Loan - Finance field.
2. Enter the rate of interest for the loan amount in the Land Loan - Finance - Int field.
3. Enter the number of months you will hold that land for in the Land Loan - Finance - Total Periods field.
The Loan Amount, Interest / Unit, and Interest/annum will be calculated.
Once you have the finance for your landholding period sorted, the next thing will be to calculate the finance needed for the construction.
Finance - Construction
The Finance - Construction section allows you to calculate the loan that you can borrow for the actual construction.
To understand the construction finance, you have to first understand the Funding Table.
The Funding Table shows that Debt LVR/LTD is the maximum amount of money that you will be able to borrow for construction.
This could be based on Finance Costs which is in turn based on total sales. So it means your lender/bank will lend you money based on the total cost of your construction.
If you have selected TDC in the Finance Costs field, in the Cost Heads section, then TDC, in the Funding Table section, will be the amount that you will be able to borrow for construction.
If you have selected GRV in the Finance Costs field, in the Cost Heads section, then the calculations will be based on the GRV field, in the Funding Table section. Based on this, you will also be able to calculate the amount of money that you will need to put in from your own pocket. This is one of the highlights of One Minute Feaso. For most developers, this is a major pitfall as they cannot figure out the amount of their own money that they need to invest.
Now let us see the Finance - Construction section.
Loan Draw Utilization - When you borrow a loan for construction, you will not gonna borrow the entire loan amount on day one. It happens progressively. As the project unfolds, as the project is billed your builder or your construction contractor will give you a progress claim. If it is a small project you can approve it yourself but if it is a bigger project, then your lender/bank will force a quantity surveyor or a third party to inspect the progress and then release the money accordingly.
In order to account for that in under one minute, Loan Draw Utilization is used. For example, if your loan draw utilization is 60%, that means that is the speed at which the loan money is going to come into your account.
So when you extrapolate everything around an s-curve. Since you are calculating feasibility in under a minute and you do not have the luxury of having all the details in place, so you can do it in a ballpark figure.
Construction(GRV) - Int - Is the percentage of interest that you will be charged for the construction loan.
Construction(GRV) - Const. Time - It must include just your construction time and the time that is actually going to take you to return the money back to the lender/bank. The only way you can return the money back to the lender is when you receive the payments for the pre-sales that you made or the project units that you sold. Add a two-month buffer to your construction time just to be on the safer side.
Based on that, the finance calculations will be done and these finance calculations then go into a loop about 10 times in order to come up with a probable value based on what you put in.
The Development Margin on Cost will be calculated and displayed.
Based on the TDC, the Developers Equity Contribution will be calculated and displayed.