Lenders do not like risks. Funding the property development project of a new or inexperienced developer is a huge risk for most lenders or financial institutions.
The truth is, even an inexperienced property developer who can get in at the start of a great project can yield significant profits for everyone involved. It's only natural that potential lenders are going to be nervous about providing property development finance to anyone who is new to the industry.
What are the risks of property development?
There are many risks when it comes to developing property in Australia. Some of the obvious risks include:
Projects running overtime are all too common in a property development or land subdivision project. We've all heard horror stories about this type of thing and it can destroy your margins.
It’s the type of risk that can be super costly if you don't have the right risk management plan.
Builders, contractors and suppliers can come at you with cost variations. When you're new to the property development game, variations have the power to completely cripple your budget unless your financial circumstances are equally flexible.
Managing the risk of exceeding the budget comes down to your construction documentation and having a tight building contract.
The Building Company Going Out Of Business
Your builder going bust after you’ve entered into a contract with money exchanged is a huge risk.
Do as much research as possible on your potential builder before entering into a contract with them. At the very least, get references from their previous customers and try to get out to one of their construction sites for a visit.
Working with Rubbery Numbers
Making high-risk decisions based on estimates/numbers that have no science or merit behind them is a sure way to lose money on any project.
Getting your numbers right is one of the most important aspects of managing a profitable property development project.
Take the time to learn what numbers are important and put in the effort and resources so you can understand them.
Make decisions based on facts only, not what you think or feel – all of your decisions need to be based on the data.
Learn more about how to finance a property development project.
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:
- Housing estate developments
- Unit blocks
- Townhouse development
- Land subdivisions development loans.
- Commercial and industrial premises.
- Construction loans.
- Investment property finance.
Seek advice on your development finance needs?