You should establish how much you can borrow and how can cover the costs before starting any development project. Property developers must understand finance and what lenders look for before they can start.
Remember that lenders look out for their safety. They want assurance that while they give opportunities for others to grow, they can as well without so much risk. Simply put, banks and lenders don’t just lend based on the project’s security. They also want to establish the track record of the development team.
Lenders impose more stringent lending criteria for larger development projects. Usually, you will need to put in 20 per cent of the funds for a 2 dwelling project and 30 per cent for larger projects. The latter considered as commercial loans.
Development loans come with staged payments that need to be completed following the end of each regular building stage. These include:
- the deposit,
- base stage,
- frame stage,
- lock up stage,
- fixing stage;
- balance of development funds supplied on completion of the project
Finance for development projects are different from ordinary finance investments because you can often borrow the ongoing interest as part of your finance package. In other words, you do not cover the interest during the construction phase. Rather, you capitalise on the interest.
Also you may need different types of lending depending on the stage of the project. These include:
- Development or acquisition loan to manage the purchase, development application and pre-construction costs
- Construction loan for the project building
- Investment loan for retaining the project as a long-term investment
At Windsor Capital Management, we can help you arrange everything especially capital access for your property development. We have been in the industry for many years guaranteeing our expertise for a wide range of property development projects.