4 Essential Tips to Get the Best Property Development Finance

By: Aaron Robbins0 comments

Wanting to get the best out of your property development ambitions often naturally means wanting to get the best property development finance to get the ball rolling. With so many different ways to go about raising money for your development project, we discuss the best way to finance property development.

Let us be your guide to property development finance — Read on to discover 4 essential tips to get the best finance for your unique needs.

Tip 1) Select your financing method for your property development project

Property developers raise finance in a number of ways. Your property development financing options for getting a development project off the ground can include:

  • Using your own available capital, such as cash;
  • Applying for a buy-to-sell, or buy-to-let mortgage;
  • Accessing a bridging loan;
  • Sourcing specialised property loans or property development finance.

There are pros and cons to each finance option:

Using your own cash

Unless you are an experienced property developer or have substantial cash reserves, you may not have enough personal capital to cover all the development costs. If you are fortunate enough to, cash can be a fantastic way to avoid interest charges and additional loan application paperwork.

Buy-to-sell mortgages and buy-to-let-mortgages

These mortgages are an attractive option if you’re looking to obtain rental income from the completed development, or wish to sell the project quickly upon completion. However, the deposit amounts for both a buy-to-sell mortgage and buy-to-let mortgage can be up to 40% of the project cost.

Bridging loans

Bridging loans are common with experienced developers, as they form a property chain, bridging the finance gap between purchasing a new development, and selling the existing project.

Property development finance

Property development finance, such as that offered by Diverse Funding Solutions, offers a fast and flexible solution to finance development. The eligibility criteria makes this finance option attractive for borrowers with bad credit, or who simply want to avoid the hassle of jumping through the hoops of traditional lending institutions.

Knowing your property financing options and considering each in detail can mean avoiding unnecessary administration, chasing the wrong finance solution, and can help protect your cash flow during the construction process.

Residential vs commercial developments

A residential development loan is generally suitable for smaller-scale developments. If your project is made up of multiple residential units, you may need to apply for a commercial property development loan.

Residential vs commercial developments

Tip 2) Know how property development finance works

Before you can assess if a property development loan is best for you, you may ask ‘how does property development finance work’?

At Diverse Funding Solutions, we offer property development loans via two options, Total Development Costs (TDR) and the Gross Realised Value (GRV).

Total Development Costs (TDC)

The total development costs option provides funding based on the total development cost, including the property purchase costs, finance interest costs, property holding costs, construction costs and property marketing and sales cost.

Gross Realised Value (GRV)

Under the GRV option, the funding is based on the projected completion value of the project (excluding GST). GRV loans generally come with a higher interest rate than a construction loan through a bank, however, the amount borrowed through a GRV loan will usually come much closer to the actual development costs than a bank loan would.

Gross Realised Value (GRV)

Tip 3) Decide on which type of lender you’d prefer to use for a property development loan

Property development financing is offered by some banks and is largely offered by private lenders.

Application lag

Acquiring a property development loan through a traditional lender such as a bank can be timely, as they have rigid lending and eligibility criteria. The time it takes to satisfy the volume of paperwork required can be the difference between winning the bid for your development site, and missing out on the development opportunity.

Loan-to-value ratio

Private lenders are generally more willing to lend a higher percentage of the TDR or GRV than bank lenders are.

Funding speed

Property developers are savvy, and will likely jump at a viable development opportunity, which is why accessing a lender who is efficient and effective should be your top priority when accessing a residential property development loan or commercial property development loan.

Interest rates

Depending on the payback period, interest repayments can have a significant impact on the overall financial viability of your development project. Often, banks will offer high interest loans for property development, to help mitigate their lending risk.

At DFS, we offer some of the most competitive interest rates within the private lending market.

Interest rates

Tip 4) Have the details ready for your loan application

Property development is more involved than building a residential home. Property companies understand the importance of securing fast funding to get their project started as quickly as possible. This means getting the necessary information ready.

Specialised property loans, such as DFS property development finance, require information on the application, such as:

  • A detailed business plan (this is particularly important for non-bank lenders like DFS, as they assess the project itself rather than relying on your personal credit score to support the loan application).
  • Full costings including the construction cost and other hard costs as well as land clearing and legal fees.
  • Zoning and planning permission information.
  • Some lenders will require pre-sales information.
  • A resume of your major consultants and property manager.
  • A feasibility study of the development.
  • Timelines, projected sales figures and the expected net result.

The best way to finance property development

Accessing one of Australia’s top private lenders could be considered the 5th essential tip to getting the best finance for your development and construction projects.

To discuss how Diverse Funding Solutions can help you get the most of out of your objectives, contact the team, today.

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