How Do You Get Property Development Finance?

How Do You Get Property Development Finance?

Accessing Property Development Finance

Securing finance is one of the most important stages of any property development project. The right funding structure will depend on the type of development, the amount of capital required, the strength of the project, your experience and the proposed repayment or exit strategy.

You can apply for property development finance through a number of traditional lending options or by approaching private, non-bank lenders. Depending on the project, a Mortgage Adviser or Finance Broker may also be able to assist with assessing suitable funding options.

How Do You Raise Finance for Property Development?

Property development finance can be raised through banks, non-bank lenders, private lenders, joint venture arrangements or other forms of development funding. Before approaching a lender, developers should have a clear understanding of the project costs, anticipated timeline, development approvals and how the loan will ultimately be repaid.

The finance application should give the lender a clear picture of the proposed development and demonstrate that the project has been properly researched and planned. The strength of the development itself, as well as the developer's ability to deliver it, can play an important role in the lender's assessment.

If you are ready to explore finance for an upcoming development, learn more about Assured Management's property development loans for residential, commercial and land development projects.

Sources of Development Finance

There are various loans or mortgage sources you may be eligible for as an investor or property developer. Depending on the scale and structure of the project, these may include:

  • Joint ventures.
  • Syndicates.
  • Private lenders.
  • Development leases.
  • Equity partnerships.

Traditional banks are one source of development finance, but their lending criteria and approval processes may not suit every project. Private and non-bank lenders can provide an alternative where a development requires a more flexible assessment or funding structure.

More information is available here.

Preparing for a Property Development Finance Application

How the project is presented both verbally and in the loan application documentation plays a major role in whether a property development finance application is approved by the lender. A well-prepared application should explain what is being developed, how much funding is required, the expected project timeframe and how the loan will be repaid.

The following steps can help give you the best chance of securing a property development loan.

Do Your Due Diligence

Good research is the foundation of a successful property development project. It is important to do your homework on the type of development you are attempting to finance before approaching a lender.

An experienced and competent property developer will generally investigate the project in detail before committing to it. This may include:

  • evaluating potential suburbs, neighbourhoods and sites;
  • doing a preliminary market study;
  • putting together a draft budget;
  • carrying out a preliminary financial analysis;
  • preparing a timing analysis;
  • reviewing the current planning environment and council approval process; and
  • discussing the potential development with a council planner where appropriate.

This information can also help a lender understand the commercial rationale behind the development and whether the assumptions being used in the application are realistic.

Complete the Feasibility Before Seeking Finance

There are some developers who attempt to use loan approval to help secure planning permission or building approval. This can be a risky strategy because approvals can take time, which may extend the overall project timeline and affect the required loan term.

If the development approval is delayed or rejected, the proposed project may need to be changed substantially or may not proceed at all.

Where possible, feasibility studies should therefore be completed and the relevant approvals progressed before attempting to secure development finance. A clear feasibility assessment can help demonstrate expected development costs, projected returns and the financial viability of the project.

Previous Property Development Experience Counts

Potential lenders also like to understand whether the borrower has previous property development experience. If you can show that you have been involved in a similar project, it can give the lender greater confidence in your ability to manage the development through to completion.

If you are a first-time property developer needing finance, you may need to demonstrate your knowledge of the project in other ways and show that you have completed appropriate due diligence. Working with experienced consultants, builders and other professionals can also help demonstrate that the project has been properly planned.

You may also need to contribute your own funds or equity to the project. A developer who has committed their own capital has a direct financial interest in the successful completion of the development.

Bear in mind that each private property finance group and non-bank lender, including Assured Management, will have its own lending criteria. Submit an online enquiry to discuss your proposed development and finance requirements.

Additional reading: The Advantages of Private Lenders for Development Finance

Prepare a Clear Development Budget

A lender needs to understand both how much funding is required and how that funding will be used throughout the development. Preparing a realistic project budget is therefore an important part of the application process.

The budget should account for the major costs associated with acquiring, approving, constructing and completing the development. Allowances should also be made for unexpected costs or changes that may occur during the project.

Submitting unrealistic figures can make it more difficult for a lender to assess the true funding requirement and may create financing problems later if the project requires significantly more capital than originally anticipated.

Create Realistic Development Timelines and Plan for Unexpected Costs

Consider the resources available to you and your project. Be objective and realistic about the potential timelines and costings for your property development project.

It is important to complete finance documentation carefully because both underfunding and overestimating the funding requirement can create problems as the development progresses.

Be as accurate as possible with timelines and cost estimates while building in appropriate allowances for unexpected issues, delays and additional expenses. Development projects can be affected by approval delays, construction issues, changes in material or labour costs and other circumstances outside the developer's immediate control.

Have a Clear Exit Strategy

Development finance is generally provided for a defined project and period, so lenders will also want to understand how the loan is expected to be repaid.

The proposed exit may depend on the development itself. For example, repayment may come from the sale of completed properties, refinancing once the project reaches completion, or another clearly documented source of funds.

A realistic exit strategy helps demonstrate that the development has been considered from both the construction and financing perspective rather than focusing only on obtaining the initial loan.

Improving Your Chances of Securing Development Finance

While every lender and every development is different, a well-prepared application generally makes it easier for a lender to understand and assess the opportunity. Before approaching a lender, it can be helpful to ensure you have:

  • a clearly defined development proposal;
  • a realistic development budget and feasibility assessment;
  • information about the site and proposed development;
  • an understanding of the relevant planning and approval requirements;
  • a realistic project timeline;
  • details of your previous development experience or the experience of your project team;
  • information about your own financial contribution to the project; and
  • a clear strategy for repaying or refinancing the development loan.

The exact information required will depend on the lender, the size of the project and the type of finance being sought.

When Should You Speak to a Development Finance Lender?

It can be useful to speak with a lender once you have enough information to explain the proposed development, expected costs and overall funding requirement. Early discussions can help establish whether the project is likely to fit the lender's criteria before significant time is spent preparing a formal application.

However, finance should form part of a broader development plan. Due diligence, feasibility, approvals, budgeting and the proposed exit strategy should all be considered alongside the funding requirement.

Property Development Finance: Wrap Up

Securing development finance for property projects can be complex and time-consuming. Developers should approach the process with a clear understanding of the project, realistic financial assumptions and sufficient supporting information for the lender to assess the proposal.

As stated earlier, you may require professional help from a Mortgage Adviser or Finance Broker, especially if you are new to the industry. Alternatively, developers can approach a non-bank lender directly where the proposed project fits that lender's criteria.

For developers considering direct funding, Assured Management provides property development loans and other development finance solutions for eligible projects in South East Queensland and Northern New South Wales.

About Assured Management

Assured Management (AML) is a flexible, non-bank lender with the ability and expertise to work directly with property developers to complete projects in a timely and profitable manner.

We provide tailored construction finance solutions and property development loans for:

Seek advice on your development finance needs or speak directly with Assured Management about your proposed project.

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