In this article, we discuss the key aspects that lenders will consider before providing you with finance for property development .
Financing your property development project: How to get your funding approved
What many first time developers don’t realise, is that when funders assess your property development finance application they will appraise the end-quality of the finished project that you are offering as security for the actual loan.
What they look at primarily are:
The price that the lenders will obtain if they had to take possession as the first mortgagee and sell the actual project.
The type of development. The rule of thumb is that residential properties are the easiest to sell., especially if they hit the sweet spot with regard to location and price point. On the other hand, regional properties, and specialised properties like resorts or serviced apartments are considered a much higher risk and property developments for these types of properties will ultimately require you to contribute a higher level of capital investment in order to lower the overall LVR.
The end value of the property that you are developing. Obviously, if the properties that you are developing are required to sell at a much higher price than that of a medium value of the properties in the area, then the lender will see this as an additional risk overall.
It is imperative that when doing your due diligence of any potential property development project, that you keep the lender’s criteria and expectations in the front of your mind.
Important documents required by the potential lender
The following are the most important documents required during the loan application process in order for the funder to mitigate any risk in the application.
A fixed price building contract
Detailed construction costings
Evidence of pre-sales
Project Management reports
Cash Flows and revised financial projections
To find out more about what one of the tier 1 lenders require, visit: https://en.wikipedia.org/wiki/Commonwealth_Bank