From competent planning to securing and managing finances to actually delivering a program of work, executing a profitable property development project is no small feat. Yet the best and most successful developers know just how valuable diligent preparation work is, for not only maximising the returns on a lucrative opportunity but getting a project off the ground by securing the right financing smoothly and efficiently with a trusted and competent funding partner that understands their needs.

By maintaining a respectful and mutually beneficial relationship with a finance broker, the most prosperous developers get the job done right the first time. To achieve this, the pros undertake several key steps to help ensure their projects are not held up by unnecessary delays or obstacles.

Experienced developers know their assets. While asset values have increased in recent years, many developers vastly overstate what their property is worth. Unfortunately, discrepancies in an application versus what a property is actually worth, ultimately result in wasted time and effort. To avoid this, it is critical to complete appropriate research to determine an accurate number on which to base property value estimates. By ensuring applications are submitted with supporting information such as local agent appraisals, funding partners can proceed with securing a deal without delay.

Know your strengths and support your story. The best brokers know there is more to the client than just a computer application, it is about the human behind the deal. So developers that can provide accurate details of supporting assets, liabilities, and a capability statement, make it possible for brokers to see the client’s strengths as a borrower. While some brokers simply focus on the transaction, with a complete view of a client’s net worth, track record, and ability to deliver as a developer, great brokers have a much better chance of sourcing the right solution and getting the deal approved.

Back up the project with due diligence. Inexperienced developers often underestimate the requirements to justify a request for finance. Unfortunately, a hopeful idea and some existing property equity are not quite enough to prove a project’s viability. Providing comprehensive and clear supporting documentation for property development is critical, regardless of whether a project is a small duplex, a residential dream home, or an enormous apartment complex. With valuations, appraisals, QS and feasibility reports providing verifiable data, seasoned developers can demonstrate they can competently manage a project, in turn providing confidence to funding suppliers.

Understand private lending interest rates. Sophisticated developers are purpose-driven. This is why private lenders are perfectly placed to customise financing solutions for specific needs. And it is for this reason that private loans can be more expensive than offerings from major banks. It is important to remember that competent private funding partners understand a client’s project, from costs and timing to how everything will take place. Developers with appropriate expectations on lending rates understand that a premium paid for the right financing solution is invaluable to a project’s ultimate success and return on investment.

Maintain a valued partnership. While everyone likes to shop around, respected brokers have the knowledge and connections to help ensure clients receive the best solutions for their needs. In the small and close-knit industry of private financing, taking advantage of the time and effort of brokers and lenders by playing off quotes against multiple providers is a sure-fire way to develop a poor reputation. When you find a broker that understands your needs, it is important to remember that valuing that relationship will pay off immensely.

Feel free to reach out to us at any time to discuss your scenario. We take pride in getting tricky development deals over the line.

1300 123 455

www.ucapital.com.au

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While banks often advertise rates that are cheaper than alternative sources of funding, it is critical to understand that there is far more to loan outcomes than just an interest rate.

Borrowers often prefer the perceived security, stability, and value of the banks, and there is little doubt a strong relationship with a major bank can prove invaluable. However, there is also a range of important reasons why banks may not be the best source or even a relevant source of funding.

Contentious comparisons

When considering a loan, simply seeking a cheaper rate can be a flawed approach. There is little logic in attempting to compare loan rates when a range of varying factors such as processing times, loan amounts and tenures, ancillary fees, and most importantly eligibility, is critical to a customer’s needs and goals.

For many borrowers and businesses, the rigid criteria of institutional lenders are not always suitable or fit for purpose. As a result, it makes little sense to consider interest rates on a product for which an applicant has been deemed ineligible.

While private funding options are particularly appropriate to consider in these circumstances, when taking into account all relevant loan factors, it certainly is not only ineligible applicants for which a bank loan may not be ideal.

Finding the right solution

In many cases, major banks can no doubt provide superior value to customers seeking a straightforward finance solution; where the borrower can be flexible on timing, requires particular funding amounts, and is of course, eligible.

However, the prescriptive rules and regulations that major lenders require of customers can often make their solutions invalid or more costly in the long term. Interest rate honeymoon periods where lenders entice customers at discounts can be misleading once standard rates are ultimately applied to loans. While upfront or obscure fees for additional services can quickly distort costs over the total life of the loan.

The flexibility for private lenders to tailor loan tenures is also of vital importance and potentially of great consequence. If borrowers are locked into a loan for a period beyond what they actually require, interest costs can accumulate well beyond what is necessary for the customer.

It is imperative that borrowers diligently consider the purpose of their particular loan, taking into account the necessary urgency and the potential financial benefits from executing a successful purchase or business deal. Perceived interest rate premiums can quickly be negated or far exceeded if the loan solution is ultimately more suitable.

Why UCapital?

Private lenders are ideally placed to provide customers with purpose-driven funds, given their ability to customise loan terms as required. Yet with such a wide choice of private lenders available, each with unique strengths, a competent broker is invaluable in helping borrowers find the correct financing option for their circumstances.

The UCapital team of experts can help customers navigate this complex range of terms that can dramatically impact the success of securing a lucrative market opportunity, whilst delivering the best possible financial outcome.

1300 123 455

www.ucapital.com.au

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There are some major misconceptions about private lending that lead some developers and business owners to avoid using them.

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How does the 85% LVR product work?

The 85% LVR product enables developers to purchase property using less of their own money. The 85% is on condition that the property already has a DA, CDC, or other formal approval ensuring that construction is going ahead.

How is the 85% structured?

This is how the deal is structured. Two different funders are used to settle the property. The first funder will provide a competitive first registered mortgage between 60-70% LVR based on the valuation or purchase price. To make up for the shortfall, the second funder will take a second registered interest in the property. It’s important to note that the second funder will not take equity in the project. This is not a JV partnership. They purely come in as a second registered mortgagee to go up 85%. In fact, in most cases, the LVR is higher than 85% and closer to 100% because the interest is not pre-deducted but capitalised at the end of the term. Unlike most private funders who normally pre-deduct the interest.

What about the rates?

As far as the rates are concerned, the first and second registered mortgage rates are very competitive as it relates to private funding. If you take a weighted and blended rate between the first registered mortgagee and the second registered mortgagee, it works out to 14-16% all up. That includes the coupon rate, the establishment costs and brokerage.

The challenge developers have.

This product is great because it solves one of the biggest challenges developers have; finding the money to make up the shortfall on the purchase of the property. Acquiring construction funding goes hand in hand with the purchase of the property. The initial purchase is the difficult and critical part, where developers need to contribute or put their own money into the development.

The problem with JV partnerships.

As a solution, developers would often bring in a JV partner who takes an equity share in the project. This strategy although valid works out to be significantly more expensive than the 85% LVR product in most cases. JV partners at times, would not only take profits at the end of the project but also ask for interest on the money they put into the business. The 85% LVR product largely solves this challenge by significantly reducing the developer’s equity contribution and opens the door to not having to bring on JV partners.

To learn more please call 1300 123 455. Website: www.ucapital.com.au

opportunities possible, whilst offering peace-of-mind and maximising value.

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