Construction Finance – Property Developers Checklist
If you’re moving forward with your commercial property development than should already appreciate that choosing the right construction finance is paramount.
You know you will need a broker with the appropriate experience to help you get the finance you need…
…and that you need all plans and projections well mapped out with any potential barriers bridged.
BEFORE submitting an application for commercial finance.
ESPECIALLY with the majority of lenders withdrawing from development and construction finance.
The Property Developers Checklist for Commercial Construction Finance discussing the following topics:
– The Different types of property development and construction finance
– How to apply for property development finance
– Why GRV is important
– & The Application Checklist
Types of property development and construction finance
The finance options available are dictated by the type of development.
Property development requires major plans and a team of builders, architects and tradespeople involving everything from land purchase to completion whereby finance will need to be taken over many months or years.
Property finance becomes a more complex series of progress payment releases until completion of the project.
Land Sub-division is another type of development finance.
Requiring less plans and a smaller team of civil engineers and tradespeople, Land Sub-division also involves land purchase to completion though finance will need to be taken over fewer months
Property finance becomes a shorter series of progress payment releases until completion of the project.
How to apply for property development finance
Lenders base property development finance on the feasibility of a project so this is where it really pays to do your homework.
That means you ensure that you can demonstrate your project has the capacity to generate a profit.
A well presented portfolio of completed projects demonstrates experience in property development.
Lenders like to see some previous involvement in a project that has been successful and profitable… No matter how small.
This is where a shortfall in knowledge and experience can be made up by delivering accurate and well-researched projections.
It is also helpful if you have a good team of builders, planners and architects.
Why GRV is important
One of the foundations of your property development finance application will be your Gross Realisable Value (GRV).
Your GRV lets a potential lender establish if your project is lend-worthy.
For example, a total build costs that exceed 75% of the GRV or end value of the project, may not be considered the a worthwhile investment by a lender.
A worthwhile investment is one that allows the lender to loan 65% of the site value, plus up to 75% to 80% of the GRV even if this equates to 100% of total build cost.
Property Development Finance Application Checklist
You will need to have figures and answers for a wide range of questions asked by the finance provider so make sure you have thought of everything.
– Purchase price of site
– The cost of construction / the build cost
– Total Development Cost (TDC), the total build cost including the cost of the site
– Expected Gross Realisable Value (GRV), what you can sell the finished development for less the GST
– Contingency plan
– Full costing breakdown, so do a good feasibility study
– Clear timescales (including expected or possible contingencies)
– Your “Property Development CV” to show experience
– Breakdown of your professional team (builders, planner, architect etc.)
– Planning permission (including restrictions) DA
– Building regulations, compliance with zoning
– Potential yield of project, profitability
Lenders want solid projects with good profitability.
When applying for property development finance it pays in both the short and the long-term to have a good development plan.
So be sure to consider any potential setbacks you might encounter and have a clear idea of the end value of your project.
If you are planning a property development, we can help you discover what’s best for you.
Give us a call on 0412 511 380 to talk through your options
or “Click here” to request a property development and construction finance consultation.
