Property Development Finance Made Easy: How DFS Can Help You

By: Aaron Robbins0 comments

Property Development Finance Made Easy How DFS Can Help You

Property development is far from simple — there are a multitude of options, considerations and steps to navigate. However, accessing property development finance doesn’t need to be complicated.

At Diverse Funding Solutions, we make property development finance easy. Let us walk you through what you need to know when sourcing the right finance option for your development project.

How to finance property development

The nature of property development is usually such that the financial return is only achieved once the development has been completed and sold. Property developers raise finance for their projects in a number of different ways.

  • Bridging loans;
  • Buy-to-let mortgages;
  • Buy-to-sell mortgages;
  • Personal loans;
  • and specialised property loans.

These different types of finance options are all common ways that investors and developers finance property development in Australia.

Using cash for property development

Naturally, if a property developer has the available cash to finance construction projects, then this can sometimes be the most straightforward and least costly way to go about funding a development. However, seldom do property developers have the capital to fund a property development project with cash, given the significant development costs for most projects (especially commercial developments or larger projects).

It may go without saying that using cash to fund developments means avoiding any ongoing interest repayments, however, it could potentially leave you with little capital in order to cover unexpected expenses (which, most experienced developers know are likely to crop up throughout a project).

In addition to tying up your capital, you may also miss out on tax deductions associated with the costs of borrowing — be sure to chat to your accountant or tax adviser regarding claiming a tax deduction for interest expenses.

What is a bridging loan?

Bridging finance is typically a short-term solution and is one of the most effective property financing options as it uses a property chain to bridge the gap between purchasing a new property without having yet sold your last. For this reason, it can be helpful for commercial or residential property development. A bridging loan can bridge the finance gap between selling a completed project, and financing the next.

Keep in mind: some lenders may charge very high interest rates for bridging loans. However, if you’re stuck waiting for the sale of your previous development before taking on the next project, a bridging loans may be well worth your consideration.

Buy-to-let mortgage

Typically, for developers who intend to create a rental income from the proposed development, there may be clauses in some forms of property development finance that forbid them from letting or subletting the investment property. A buy-to-let mortgage permits the borrower to rent out part of the premises, or the full premises.

Due to the flexibility with letting that these mortgages provide, the downside is that they often require a much higher deposit amount than other forms of commercial lending or development financing; sometimes as high as 40%!

Buy-to-sell mortgage

Buy-to-sell mortgages don’t lock you in like some traditional mortgages do before you’re eligible to sell your property. If you’re seeking a quick turnaround after the sale of your developed property, then a buy-to-sell mortgage provides the flexibility to sell when the time is right — not when you are dictated to.

Similar to buy-to-let mortgages though, buy-to-sell mortgages often come with hefty deposit requirements.

Personal loans

Depending on the lending institution, you may be able to access a personal loan in order to finance residential developments. However, the terms and lending criteria of personal loans can be exceptionally strict.

Generally speaking, a secured personal loan may not be accessible for the development of a commercial property or larger developments. Also, personal loans rely on your personal credit score in most cases and may attract higher fees.

Specialised property loans and property development finance

At Diverse Funding Solutions, we are experienced private lenders, who offer specialised property loans through our property development finance solution. As private lenders, you can avoid the rigidity and inflexibility of traditional lenders.

For a ground-up development, DFS understands that it can be notoriously difficult for developers to secure pre-sale off the development plans, which is why it makes it even more important to get construction underway.

Property development finance is less conservative when it comes to property development project valuations and are offered over periods of up to 2 years — giving you ample time to complete the build and market your project.

How does property development finance work?

Property development financing is a type of commercial loan that allows you to get funds quickly to secure a property or site for development (and differs to a residential development loan). They are generally a short-term loan and can be structured in a way that allows you to access your equity prior to the project completion.

The two main options for property development finance are:

Total Development Costs (TDC)

Funding for the total cost of the property development, such as the land purchase, construction cost, finance interest costs, council rates and property marketing and sales costs.

Gross Realised Value (GRV)

The gross realised value funding method works on the projected completion value of your project.

The benefits of a DFS property development loan

Property companies are usually very experienced when working with project lenders, however, if development loans are new to you, Diverse Funding Solutions makes the process both easy to understand and efficient.

  • No (or minimal) pre-sale requirements.
  • Minimal documentation requirements.
  • No credit checks.
  • Minimal equity/deposit requirements.
  • No property development project experience required.
  • Terms and repayment schedules being tailored to project needs.
  • Fast-tracked approvals and settlements Australia-wide.

Working with Diverse Funding Solutions for your next development project

Borrowing money via commercial or residential development loans is easy with Diverse Funding Solutions.

We don’t check your credit at DFS. Instead, we focus on your business plan and the project itself. To make the process as efficient as possible, it’s important to have your financial information ready:

  • A copy of your business plan.
  • Any planning permission documents.
  • Have your development approval in place.
  • Understand your hard costs and any other associated expenses, such as land clearing.
  • If you’re not an owner-builder or builder-developer, ensure that you have your project builders lined up.

To discuss more about our eligibility criteria, or to secure funding now, contact our property development finance specialists, today!

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