 # My Finance Thumb Rule ## 23 Mar My Finance Thumb Rule

A common question I get from someone looking to start their first development is “How much money (equity) will I need”?

If it is a small project such as a duplex, you can use retail finance the same as when you bought your house.

It varies from bank to bank, but your equity could end up around 20% – 30% of the end value. However, serviceability is a big ‘must have’.

With commercial finance, it is a bit different. They are more likely to lend a percentage of total development costs (TDC).

To work out the equity you would have to put in, here is a quick thumb rule:

Equity = GRV x 100/120 x 0.3

GRV (gross realization value) is the selling price of your project.

We are looking for a 20% ROC (return on cost) ie profit as a % of costs.

The bank loans 70% of TDC so we put in 30% as equity.

Here is an example for a 3 townhouse project where the townhouses sell for \$600,000, we want a 20% ROC and the bank lends 70% of TDC.

E = \$1,800,000 x 100/120 x 0.3

= \$1,500,000 x 0.3

= \$450,000

So to finance this whole project we need to put in \$450,000 equity.

##### 1Comment
• ##### Ross Colledge
Posted at 14:57h, 23 March Reply

Thanks Bob.; This makes it simple to calculate.