Finance Tips and Tricks for Property Developers

First published in 2022 Daniel Donnelly

Copyright © Daniel Donnelly

Sherwood Finance Limited

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ISBN: 978-0-6454035-0-3 (pbk)

ISBN: 978-0-6454035-2-7 (Ebook)

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Contents

1 Lenders

2 Structures

3 Products

4 Packaging a loan proposal

5 Raising equity funds

7 Equity partners

8 Securities

9 Glossary of Terms

Introduction

Finance is an essential part of any property development project. It can be important for various reasons, but it’s necessary for property developers with a higher capital requirement. One explanation for this is the sheer number of expenses for each stage of the project in question, such as capital for council approval, long-term finance to hold and operate the development, and more, as many of these will often need funding. In addition, the existing equity held by developers is usually not significant enough to cover everything from start to finish.

While many moving parts will need consideration, nothing will proceed without proper financing. The type used will need to be compatible with several aspects of the development and have fair and flexible terms and conditions to allow the developer to bring their ambitions for the property to life.

Keeping in mind, it’s a wise for developers to get the appropriate finance before committing to a project. A developer will need to understand different levels of finance, each of which is vital to getting funding. We’ll discuss each to give you a better idea of what they mean and how they can help you.

From the loans and security to current market trends. While not every developer will access capital (or do so for every project), the good news is that there can often be enough money within the offered interest and terms to make a project work.

The essential aspect of securing finance is understanding the project, its potential, which lender and how to present your plans to maximise your chances of efficient approval. When looking for the correct funding, it’s often best to negotiate with multiple lenders; after all, you won’t know whether your application is successful until the loan committee has decided, which can take quite time.

1 Lenders

Choosing a lender

In most cases, before talking to a lender. A brilliant piece of advice is to get in touch with the lender or brokerage first to find out about project security before meeting with real estate agents. Confirm:

Type of property you want to build

Location of the development

Potential that a lender can offer with their loans

Lender quoted interest rate, charges and loan term.

If the response is satisfactory on each of the above, here are a few questions to ask yourself:

How much of the total development cost will be covered by financing?

How much equity is needed?

Third, how much will construction and the hiring of professionals cost?

Finally, what are the terms of the loan?

Potential problems with a loan.

The terms may not be entirely suitable for your needs, or added requirements, such as a loan extension. Here are a few examples of why a loan may not be the right fit for your development and general considerations to have in mind:

The payment schedule with interest

Personal liability on the loan

The estimate for settlement costs

Compensation for predevelopment fees

The time to get funding.

The drawdown schedule for the construction

A contractor’s letter of credit.

The phases of progress payments

The Surveyors approved by the lender

The costs and terms of potential loan extensions

Commercial Lenders

With property development applications, the leading four banks to consider are Westpac, NAB (National Australia Bank), ANZ (Australia and New Zealand), and CBA (Commonwealth Bank of Australia). There is many other lending companies for large property development projects. Developers must consider and negotiate the loans available, including the different terms and conditions they are likely to be offered.

Corporate borrowing is the term used for when a financial institution lends to a company, whether for residential or commercial purposes. Before