Skip to content
Menu
Shark College
Shark College
Property Development Finance

Property Development Finance

May 1, 2022 by B3ln4iNmum

DFMB2_AS_CS3_v1 Page 1 of 4
Section 3: Case Study 3 — Rahn and Deepa
Singh – Property Development Finance
Background
Rahn and Deepa Singh have been clients of yours since 2005 when you assisted them with a home loan
from ABC Bank to purchase their current owner-occupied home. They have recently paid off their loan from
an inheritance from Deepa’s family.
Their accountant has recommended that they consider undertaking an investment property development
in their own personal names as this could assist with reducing tax through negative gearing. While they
wish to explore this option, they do not currently have a financial planner and have said that they have
been considering whether they need one to help them with wealth creation strategies, as they want to
retire within the next 10-15 years. They also wish to look at ways to protect their current assets and
income.
Property development opportunity
Rahn advises that they have taken the advice of their accountant and have located a run-down property on
a large block of land in a nearby suburb. They would like to purchase the property with the aim of
constructing three units on separate titles. On completion, two (2) of the units will be rented out while the
third will be sold to reduce debt and provide funds for another similar project.
The two properties they wish to retain are long term investments which they hope to leave to their
two children. Their solicitor has confirmed with council that given the size of the block they should be able
to sub-divide and each unit will have a separate title.
The property is a corner block, and a local real estate agent has stated that the rental returns would be
slightly higher than suburb averages, as the area is made up of much older homes. Capital growth could
also be above average as the suburb is ideally placed for medium density development with schools and
shops nearby. Transport infrastructure is lacking, however, rail links to the area are planned for completion
during the next four (4) years.
They have also been speaking to council and there appears to be no restriction for a subdivision and they
have indicated they will approve the project.

DFMB2_AS_CS3_v1 Page 2 of 4
Details of the property
Purchase price of property is $600,000. They have obtained a builder’s tender for a total of $750,000 for
the construction of the three (3) units. Cost includes all driveways, fencing and landscaping.
They have also completed research and estimate the following project costs:
• demolition and site clearance costs – $40,000 (clearance within two (2) months of purchase)
• subdivision costs of approximately $30,000
• deposits calculated at 25% of purchase price and construction costs (LVR 75%) of approximately
$405,000
• lender fees and government charges of approximately $15,000
• solicitors’ costs $10,000.
The builder has indicated that completion date is in seven (7) months after the clearance of the site.
The clients are willing to increase the mortgage on the family home in order to fund the project costs and
control these payments. However, they would also like to keep debt over the family home to a minimum.
They have mentioned that they would not like to link the family home to the security offered to support
the property development loans through cross-collateralisation.
The real estate agent has estimated that, on the completion, valuation of each property would be $750,000
and rentals should be around $550 per week per unit.
Below is a summary of initial client fact find. Rahn and Deepa have provided the last two years personal tax
returns and last two (2) payslips as proof of income.
Applicant information

Name Rahn Singh Deepa Singh
Address 26 Nowry Road, Yourtown 1234 (since 2005)
Age 42 years 39 years
Phone 0409 988 111 0146 234 577
Status Married with 2 children (Saira 13 & Ajun 16)
Financial details
Gross income $86,000 $65,000
Net income $65,860 $52,130
Occupation Truck driver Store manager
Employer Interstate Trucking Pty Ltd Cloths Mart
Time of employment 21 years 11 years
Contact numbers 7900 5478 7890 9876

AssignmentTutorOnline

DFMB2_AS_CS3_v1 Page 3 of 4

Assets
Owner-occupied property valued $900,000
Property owned in joint names as ‘joint tenants’
No debt
Cash at Bank $250,000
Superannuation $350,000 $200,000
Personal insurances within
superannuation
• Death $250,000
• Total and permanent disability
$250,000
• Income protection Nil
• Death $250,000
• Total and permanent disability
$250,000
• Income protection Nil
Contents $150,000
Motor Vehicles $35,000 $20,000
Liabilities
Credit card Limit $10,000
Outstanding debt — $5,000
Limit $5,000
Outstanding debt — $1,000
Monthly general living expenses $4,200

DFMB2_AS_CS3_v1 Page 4 of 4

Other Information
New property ownership Accountant has advised the property is to be purchased in joint names
as ‘joint tenants’
Wills Clients do not have wills and this is a concern to them as they would like
to leave one unit to each of their children when they pass. They would
also like each of the properties be debt free when this happens.
Credit history Each have good credit history with credit scores over 900
Solicitor/conveyancer Peter Parker, of Parker Partners – Solicitors
Financial planner Clients do not have a financial planner.
Accountant David Crisp of Yourtown Accounting
Subdivision Council approval for subdivision and approval of plans expected within
30 days of settlement
Demolition To be completed 30 days after approval from council
Builder Home builders
Builders are licenced and construction to be funded as follows:
• 10% deposit (signing of contract on approval from council)
• Stage 1 – 10% slab (60 days after signing of contract)
• Stage 2 – 20% frame (30 days after slab payment)
• Stage 3 – 20% lockup (30 days after frame payment)
• Stage 4 – 20% fit out (30 days after lockup payment)
• Stage 5 – 20% completion (includes fencing, driveways and
landscaping 60 days after fit-out payment)
Credit card debts Assume the minimum monthly repayment is to be calculated at 3% of
credit card limit
Interest during construction period Clients would prefer to pay the interest on the loan during construction
period
Residual debt Clients have advised that once the unit is sold they will use the sale
proceeds and their savings to clear their home equity loan against the
family home
Broker remuneration Calculate upfront commission at 0.66% of loan amount and trail at
0.165% which includes GST

 

  • Assignment status: Already Solved By Our Experts
  • (USA, AUS, UK & CA PhD. Writers)
  • CLICK HERE TO GET A PROFESSIONAL WRITER TO WORK ON THIS PAPER AND OTHER SIMILAR PAPERS, GET A NON PLAGIARIZED PAPER FROM OUR EXPERTS
QUALITY: 100% ORIGINAL PAPER – NO PLAGIARISM – CUSTOM PAPER

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Recent Posts

  • Assignment: Individual Report (50%)BackgroundYou have
  • THE UNIVERSITY OF NORTHAMPTONFaculty of Business and
  • Assessment Details and Submission GuidelinesTrimester
  • Self Development and Responsibility
  • Data insights

Recent Comments

  • A WordPress Commenter on Hello world!

Archives

  • May 2022
  • April 2022
  • March 2022
  • February 2022
  • January 2022
  • December 2021
  • November 2021
  • October 2021
  • September 2021

Categories

  • Uncategorized

Meta

  • Log in
  • Entries feed
  • Comments feed
  • WordPress.org
©2022 Shark College | Powered by WordPress and Superb Themes!