How self-funded retirees can offset the effect of interest rate cuts

Life became even more difficult for self-funded retirees when the Reserve Bank of Australia (RBA) cut the cash rate by 15 basis points to a record low of 0.10%.

With inflation running at 1.6% the cut will effectively result in a negative yield for all forms of cash deposits, including term deposits.

CanStar found the best Term Deposits ranged from 1.1% to 1.23% (Nov 2, 2020) creating a major income issues for hundreds of thousands of self-funded retirees.  

This was confirmed by a recent survey of over 1,000 Australians aged 40+ that showed 65% of retirees said they were concerned about their income in retirement and almost half (49%) of retirees say they don’t feel confident about their financial security over the next five years.

Add to this COVID-19’s effect on the share market that has seen blue chip dividends slashed and the search for high yielding investments becomes far more important. 

A secure alternative is to invest in mortgage funds that offer the types of yields to generate a living income.

Mortgage funds provide investors with first mortgage security and familiarity and everybody understands the principles of a mortgage and the multi-billion dollar sector is booming as the major banks withdraw from the commercial property sector.

The Windsor Capital Core Fund (WCCF)* is offering a forecast yield of 7% based on investments in the commercial mortgage sector.Investor’ funds provide mortgages in the retail, office, industrial and large scale residential sectors with terms ranging from 6-24 months.

The WCCF is a Pooled fund that minimises investor risk by spreading investor funds across a range of mortgages and offers returns paid monthly.

For further information on the WCCF go to www.windsorcapital.com.au/WCCFLP

* The WCCF is only available to sophisticated investors with a minimum investment of $50,000

The COVID-19 impact on Mortgage Trusts

The Australian property sector is facing uncertain times following the COVID-19 pandemic that has seen dramatic changes to our residential and commercial markets. 

The question is whether the changes will be short term, and snap back to pre-COVID, or result in a fundamental reshaping of one of the major drivers of the Australian economy? 

Concerns about the pandemic effect on office, residential and retail markets in particular are yet to wash through the market.  Will cities be left with empty office buildings as corporations rationalise office space through the use of working at home and hot desking? 

Will we have vacant shopping centres for years, as the huge uptake of online shopping is putting further pressure on bricks and mortar retailing? 

In addition, the fall in migration will have a long-term effect on the residential market as housing starts slow or will the billions in stimulus keep it active? 

Will these changes affect the Australian mortgage trust market and reduce the attractive yields that have been attracting billions of dollars in the past 12-24 months? 

At this stage it appears this uncertainty will not be an issue.  One of the key factors underpinning the mortgage sector is the withdrawal of the major banks creating an $80 billion funding gap for quality property projects into 2021. 

It is the established real estate investment trusts (REITs), with major pre-COVID holdings with high gearing that face the major challenges. 

Mortgage trusts are generally forward looking.  They finance new development (or refinance existing quality property) underpinned by mortgage security and have the ability to pick the sectors that are expected to perform the best.  

In addition, mortgages trusts are short term and nimble with mortgage periods typically from 6-36 months. 

Boutique mortgage funds, such as the Windsor Capital Core Fund (WCCF), manage investment risk in a number of ways. 

WCCF is a pooled fund that invests in a spread of quality mortgages to minimise volatility across a variety of property sectors. We take a conservative approach and follow strict in Due diligence guidelines. 

At present we are seeing an increase in deal flows and it is an excellent time to explore the opportunities of investing in mortgage trusts and diversify your current portfolio.  

Should you have any further questions or want more information on the Windsor Capital Core Fund please do not hesitate to contact us on 1300 346 782. 

Important Features of Commercial Loan for Property Developers

Property developers looking to refinance or purchase commercial property can apply for commercial property finance both for small and big projects.

Is commercial loan similar to commercial mortgage? No. A commercial mortgage is a type of mortgage loan secured by a commercial property. Its main purpose is to purchase, redevelop or refinance a commercial property.  On the other hand, conventional commercial loan is a short term financing mainly used for the purchase of equipment, funding for payroll and other basic operational needs. But, there are specialized lenders offering commercial loans for development projects.

Here are the typical features of a commercial loan:

Loan term The most common commercial loan term is 15 years. But, the collateral you offer to the bank has a huge impact on the term of your commercial loan. For example, those who secure their loans with a residential property can obtain up to 30 year loan term. If you use your commercial property as security the lender may approve a 20-25 year term. You can also opt for shorter term development loans and bridging loans for smaller loan amount.

Loan Amount How much you can borrow depends on two factors:

  1. Loan to value ratio. It is the percentage of the property value (LVR) which is determined by the security of the loan. The LTV is commonly used by lenders as a lending risk assessment tool to examine if a borrower is high risk or not.

    Formula Mortgage amount divided by the appraised value of the property is equal to the loan to value ratio. For example, if the mortgage costs $500,000, and you divide it with the appraised value of your property which is $250,000, your home to value ratio is 2.  The higher the LTV ratios, the higherthe risk and, therefore, the more costly it is for the borrower. You can still get affordable interest rates if you buy mortgage insurance to offset the risk to the lender.

  2. Repayment capacity. Lenders measure your ability to generate enough funds to make debt repayments on time. That’s why mainstream lenders and banks require financials such as income tax returns for the past three years, books of accounts and other proof of income to gain an insight into your business’s ability to generate income. They often use this to conduct a cash flow analysis to be certain that you can meet your financial obligations over the period of the loan.

Windsor Capital can help you find affordable and ‘quick approval’ commercial loans suitable to your development needs and then guide you through the intricate processes of commercial loans and commercial mortgages.

Tips When Calculating your Costs before Starting a Development Project

Before applying for a commercial mortgage to fund your development project In Melbourne, make sure you conduct a ‘needs-assessment’ or a thorough analysis of your financing needs first.

Step 1. Calculate the costs associated with the stages of development of a project.

  1. Pre-development stage (or the planning phase): It may include the appropriate filing fees, regulatory fees, legal fees and other expenses incurred in the formation of your organization or startup. Pay particular attention to acquisition options, marketing costs and the costs of securing loans for your project.
  2. Development stage: It is the longest and the hardest stage when accounting for management and cost control is very important. Prepare a comprehensive budget with estimated amounts for each of the cost category with your team. The finance, construction, and management team must work together during this phase for you to come up with a reasonable budget.
  3. Post-development stage: When the project is noticeably complete, you still need money to prepare it for its intended use. Before the buyers or lessees can move in, you may have to pay for real estate taxes, broker’s fee and attorney’s fee. You may also have to pay for certain improvements to make it habitable, such as utilities, cleaning and security.

Step 2: Study various loan options. Compare offers from banks, online lenders and other financing companies to find the loan with the lowest interest rate. You can choose between fixed or variable interest rate, depending on your capacity to pay and financing needs. Ask about repayment options, pre-payment penalty and the existence of any borrower protections.

Step 3: Make sure that the cost of the loan is reasonable enough

Developers should make a profit from project not only because the property market is good, but because they don’t have to spend a huge amount of money in repaying the loan used for the project.

Let’s say, you took out a property development loan amounting to $500,000, minus $50,000 interest, to purchase a property for $200,000. If you spent $300,000 developing it, and sold it for $1, 000,000 with a significant rise in property prices; your efforts made you $450,000.

In the example above, it is obvious that the profit margin is substantial. But, if you will spend too much on the overall interests of the loan, you may end up with a thin profit margin.

Are you planning to start a property development project in Melbourne? Windsor Capital can guide you all throughout the stages of your property development project. 

Melbourne Housing Prices Keep Rising

Known as the city of cutting-edge architecture, spacious parks and gardens and a prime spot for water activities, Melbourne is also pegged as Australia’s hottest property hotspot.

Melbourne’s property market is expected to perform better than most locations in Australia this year as the asking price of houses in the city reached its highest pick. The latest weekly SQM Research data reveals that the median asking price in the city exceeds 1 million for the first time. This continuous decline of more affordable houses is an opportunity for property developers to build residential properties that will cater to a huge number of potential renters.

Across the city –developers have huge opportunities to build investment units, residences, and commercial spaces for the locals and foreign investors. However, as the lending policies tighten across the country, it’s still frustrating to witness small and largerdevelopers fall into the lending traps that consequently take huge cuts to their revenues. Since banks are declining many property development loans and commercial mortgages, many investors are prone to predatory lending practices by loan sharks offering quick loan approval. Anyone that falls into this trap either didn’t do enough research about the lending market in Australia, or doesn’t have the access to reputable financing advisers to help them navigate the strict lending market.

Windsor Capital understands how development works and how to increase a developer’s borrowing power in the midst of a tough lending environment. We provide solid advice and assistance to get the right financing for your project.

Common misconceptions of private lending

Many developers and investors shy away from private lending due to a number of misconceptions. A common perception is that private lending is slow, expensive and inflexible.

Many of these misconceptions have grown in the past year or two as many inexperienced lenders entered the market without the resources to deliver on funding promises.

In the past few months many of these novice lenders have exited the market clearing the way for better outcomes from experienced finance businesses. In the right hands private lending is much faster than banks, however, you do need to take the right approach to secure finance from the sector.

Private lenders assess each transactions on its merits rather than take the pigeon-holed approach with a fixed credit policy that is typical of the banks. And it is not subject to the whims of banking policy.

For example, pre-sales are not a prerequisite for private finance. The banks’ slow approvals process also presents a major opportunity cost for developers who can wait up to 6 months or more for a finance approval. Private lending can deliver funds in a fraction of that time getting your project to market faster. This approvals flexibility addresses the perception of private lending being more expensive.

While the interest rates are higher than the banks, starting your project earlier in the cycle may in fact increase your profits at the backend of the transaction as it allows you to be first to market. And it is usually a short term loan (6-24 months) so the impact of the higher rates (that are now more competitive than ever) is not as profound.

In fact private lending is frequently used as a bridge to bank finance. In addition, private lending is streamlined and has a more direct approval system – you deal with the people making the decision.

Banks frequently overcomplicate transactions and this non-commercial approach does not deliver the transparency developers require. With private lending your contract is fixed and you get certainty of outcomes.

Windsor Capital offers:

  • Loan size from $1.5 million to $30 million.
  • No vendor costs are involved until approval is issued
  • Loan amount can be inclusive of all loan costs and interest.
  • Nominated brokerage fee paid on the day of settlement.
  • Interest rate from 7.95%.
  • All applications considered on the day they are received
  • Staged funding available on large projects.

It’s time to start planning for the upturn

Every property developer knows you can’t pick the bottom or the top of the market.

While some pessimists are calling this is a “dead cat bounce” others are starting to see sunshine over the horizon.

We believe the market is in the early recovery mode and it is time to start planning for the next upcycle.

The roadblock at the moment is the banks (still!) who won’t lend on anything without 110% sales. (That’s 100 per cent sales plus GST plus sales commission.)

This is compounded by the valuation industry still taking a grim view of the prices paid over the past 2-3 years and the banks enforcing their LVRs.

So where is the upturn going to come from?

I know a number of major developers that are seeking sites again – a clear sign the market is setting the foundations for the 2020s.

Plus there is a finite amount of stock in the market and underlying demand is starting to accelerate again.

Once this stock is whittled down prices will stabilise and then start to climb again.

It is time to start planning for the upturn.

If you are seeking construction finance Windsor Capital is offering No Presale Construction Finance on terms up to 24 months.

This is designed to allow developers with quality sites the chance to return to the market and position themselves for the recovery.

If you wait too long you will miss this key opportunity.

Will you be ready to cash in?

Private interest rates fall in competitive market

Interest rates in the private debt funding market has dropped significantly, despite banks closing their lending to property investors said Chrish Samuel Managing Director of Windsor Capital Management.

Mr. Samuel said more than a billion dollars has poured into the short-term debt market pushing interest down to recent lows as the weight of money flowed into the sector.

He has witnessed rates fall from 12% pa in early 2018 to rates from 7.95% pa today for property backed debt.

“This has allowed breathing room for property developers to restructure their developments in a tightening property market and has gone some way to securing their financial position,” he said.

Mr. Samuel said Windsor Capital Management has lent in excess of $275 Million in the past 12 months to experienced property developers with a track record, with no upfront pre-sale requirements, however borrowers are required to make pre-sale commitments during the course of construction.

“The flow of private capital into the debt market has been extraordinary, as cashed up investors have decided lending is offering better returns than other financial asset classes.

“I believe we are going to see banks continue to tighten lending parameters for some time, which will push more developers and investors into the private debt market,” Mr Samuel said.

Windsor also lends funds to developers and investors looking to landbank properties along with mezzanine debt.

“There has been a surge in investors and developers seeking landbank funding as banks withdraw from the market. We are seeing banks lending as little as 20%-30% of valuation or refusing to fund experienced developers and investors altogether,” he said.

Windsor Capital Management has been lending to property developers and property investors for a decade and has prided itself on its innovation and an entrepreneurial philosophy by going against the grain.

By adopting a conservative lending policy Windsor Capital Management has provided secured returns to some of Australia’s wealthiest individuals and family offices.