Overstating profit by about 2% and equity returns by about 5% is the kind of error I often see when developers rely on an “all-in rate” proxy.

Adding interest rate + line fee + establishment fee to make a single rate is a common shorthand in one-page feasibilities.

It is also wrong.

In the example shown, a correctly modelled $21.8m, 70% LVR construction loan produced (vs a 10.0% pa all-in interest rate):

 • a $498k drop in profit
 • a $470k increase in required equity
 • about a 2.1% reduction in profit on cost
 • about a 5.4% reduction in EIRR

If you want an accurate loan cost and equity requirement, you need to model monthly cash flows. There is no shortcut.
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𝗧𝗵𝗲 𝗳𝗼𝘂𝗿 𝗰𝗼𝗺𝗽𝗼𝗻𝗲𝗻𝘁𝘀 𝗼𝗳 𝗰𝗼𝗻𝘀𝘁𝗿𝘂𝗰𝘁𝗶𝗼𝗻 𝗹𝗼𝗮𝗻𝘀
These four variables determine both total loan cost and required developer equity.

1. Loan-to-value ratio (LVR)
The LVR sets the maximum loan limit. Example: $40.0m net realisation × 70% LVR = $28.0m loan limit.

2. Interest rate
This is the sum of base rate plus the lender’s margin. Example: 6.5% pa, made up of 4.0% base + 2.5% margin.

Interest is charged on the 𝗼𝘂𝘁𝘀𝘁𝗮𝗻𝗱𝗶𝗻𝗴 𝗹𝗼𝗮𝗻 𝗯𝗮𝗹𝗮𝗻𝗰𝗲, not the loan limit.

3. Line fee
The line fee is nearly always charged 𝗼𝗻 𝘁𝗵𝗲 𝗹𝗼𝗮𝗻 𝗹𝗶𝗺𝗶𝘁, not the outstanding loan balance.

Example: 2.5% pa line fee on a $28.0m limit = $700k pa, or about $58.3k per month, regardless of loan balance.

4. Establishment fee
This is paid once at the start and is also based 𝗼𝗻 𝘁𝗵𝗲 𝗹𝗼𝗮𝗻 𝗹𝗶𝗺𝗶𝘁. Example: 1.0% on $28.0m = $280k.
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𝗞𝗲𝘆 𝗶𝗻𝘀𝗶𝗴𝗵𝘁𝘀
 1. Adding the interest rate, line fee, and establishment fee does 𝗻𝗼𝘁 create a reliable proxy for total loan cost.
 2. Interest cost varies with the monthly loan balance, not the loan limit.
 3. Line fees and establishment fees are calculated off the loan limit, so they are not directly comparable to interest cost.
 4. If you rely on a simplified one-page feasibility, you will often 𝘂𝗻𝗱𝗲𝗿𝘀𝘁𝗮𝘁𝗲 𝗹𝗼𝗮𝗻 𝗰𝗼𝘀𝘁𝘀 𝗮𝗻𝗱 𝗿𝗲𝗾𝘂𝗶𝗿𝗲𝗱 𝗲𝗾𝘂𝗶𝘁𝘆.
 5. A weak feasibility model is a major red flag for lenders and equity JV partners.

𝗗𝗲𝘃𝗲𝗹𝗼𝗽𝗲𝗿𝘀: have you used an "all-in rate" shortcut, only to discover later that the equity requirement was materially higher and the profit outcome lower?

Developers wanting confidential benchmarking of current terms, or introductions to lenders and equity JV partners, are welcome to reach out. No exclusivity required.

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