There are several factors you need to consider before deciding whether property development is right for you. This includes the different finance options available for your project. Needless to say, finance for property development is more complex than regular residential lending because of the higher costs involved.
– An acquisition loan that covers the purchase, application, and pre-construction costs
– A construction loan that covers the building costs and
– An investment loan for long-term investments
The construction loan is typically structured so the lender finances up to 70 or 80 per cent of the project’s final cost and the developer is expected to provide some funding towards the development. A developer typically needs to provide 20 per cent of the costs for a two-dwelling project and about 30 to 35 per cent for larger projects or commercial loans.
Just like a standard residential new build loan, construction loans offer staged payments that are finalised at the end of each stage, typically: the deposit, base stage, frame stage, lock up stage, fixing stage, and completion.
You would need to show the lender that you have considered all project variables and still allow for some contingency funds. The lender would ask for the project’s development type, site zoning and description, design concept, land and construction costs, projected sales figures, construction timelines, the developer’s financial strength, available equity, development track record, and miscellaneous costs.
The lender would need to provide finance for the construction, so they need to review your financial application meticulously at the beginning of the process and not the end.
A professional valuer from the bank’s independent firms will investigate any potential issues that could possibly derail your project financially. They will review your feasibility study and look for any missed expenses as lenders typically want to see that the project can make at least a 15 per cent profit.
One common mistake in feasibility studies is not including tax and holding costs. Avoid stacking up the numbers just so the project will look better and never cross-collateralise your projects with your existing properties! Remember – it’s always better to err on the side of caution.
Take everything with a grain of salt as the information in this article is general in nature and does not constitute personal advice! If you want us to look into your personal objectives, financial needs and situation, just sing out and we’ll give advice tailored just for you. Take advantage of our years and years of experience dealing with all sorts of property developers!
Your Outside Team
Need a bit of assistance with your business? Contact an Outside Accounting team member today and learn more about our fixed fees. You won’t regret it.
Aside from business consultation, we are business accountants Wellington who offer accounting, bookkeeping, payroll services designed to help you achieve greater financial success.
You can click here to speak to a business, accounting and bookkeeping firm. We will give you a call to know more about your needs. We will explain to you how we can improve your business.
Address: Level 2, 182 Vivian Street,
Te Aro, Wellington 6011, New Zealand
Mail: PO Box 24-457, Wellington 6142
Phone: 04 889 2975
As a business owner, reviewing your financial reports each month is essential for maintaining control and steering your business in the right direction. Here are six key reasons why you should prioritize this important task.
Starting your own business is exciting, but handling all the financial details can be overwhelming. Instead of spending your time managing the books, you could focus on growing your business. This is where expert accounting firms like Outside Accounting step in.
Choosing the right accounting software is crucial for your small business, and with so many options available, it can be challenging to decide which one is best. Xero Accounting Software stands out as a popular choice, but what makes it so special? In this article, we’ll explore six key benefits of using Xero for your small business. If you’re looking for a skilled, cost-effective accountant in Wellington to assist with your small business bookkeeping, reach out to the friendly team at Outside Accounting today.
Bookkeeping fraud, including embezzlement and theft from company accounts, can quietly drain your business’s resources for years before being discovered. The consequences can be devastating. This guide will explore how bookkeeping fraud happens and provide five effective strategies to protect your business from it.
Taking control of your small business’s financial operations is a critical step toward long-term success. With accurate financial planning and expert assistance, you can create a roadmap for expansion and growth within your industry. While managing small business finances may seem daunting, following the right steps can make the process both enjoyable and highly profitable.
As a small business owner, keeping a close eye on expenses is essential, and that includes accounting costs. You might wonder if your accountant’s fees are worth it or if you could handle it yourself using online accounting software.
ALL POSTS
NEWSLETTER SUBSCRIPTION