Multi-Unit Development Finance Explained

While careful planning is required to perfect the art of successful property development, the results are worth the effort.

At Nicon Built, we love the opportunity to partner with clients and bring their property development dreams to life. However, in the early stages of planning, many clients come to us with questions or concerns around finance. In this blog, we’ve put together a few tips and tricks to help you secure multi-unit development finance with ease.

Financing your build

Borrowing for a multi-unit development is generally different to securing a loan for a residential build. As you’re requesting funds as a developer, the focus of the approvals will be on risk evaluation.

Part of a development loan application will generally involve proving the viability of your business, but documentation will depend on the lender. Be aware that investment loans for property development generally have a slightly higher interest rate.

Some multi-unit developments will qualify for a residential loan, depending on the size and scope of the project—notably the number of units—and any occupancy plans. Your lender will be able to clarify the categories.

Perfecting the pitch

A lender must feel confident your build is worth backing before they approve your loan. When explaining your development, start with a clearly planned timeline, proposed builder, design details, site description, and a breakdown of associated costs and expenses.

Location, zoning, permits, and pre- and post-value predictions are all relevant. Understand the suburb and market and define profit potential. Having pre-sales or a list of waitlisted tenants will also work in your favour.

If your present proposal isn’t confirming feasibility, consider a professional consultant who specialises in documentation for pitching multi-unit property development to increase the chance of funding.

Your input

As the developer, you will need to provide financial transparency. This can involve sharing copies of any existing assets, income, present debt, and bank statements, which will all determine your borrowing limit.

The percentage of the project loan to value ratio that you can borrow (LVR), and the terms of the loan, will be impacted by the size of your development. This percentage will differ between lenders.

Another thing to consider is contingency funds. A contingency fund is money that you can access should issues develop. Most lenders require you have a certain percentage of the loan available in case of emergencies. Your lender will also likely require a minimum set amount of upfront equity from you.

Staggered loans

The amount you borrow will generally be released to you in a series of stages, in line with the project’s advancement and the lender will usually need verification from the builder before releasing further funds.

A traditional financial institution loan for yourself is only one port of call. Utilising equity from other properties in your portfolio, joint ventures, and private lenders are a few alternate avenues.

Be aware banks may be unwilling to exceed your loan limit if cost predictions prove inaccurate. A reputable broker can offer advice for those who encounter a problem that calls for an innovative solution.

We can help

The Nicon Built team are always happy to discuss a multi-unit development project. For over 25 years we’ve been helping clients achieve their property goals. If you’d like to discuss the viability of your vision, contact our team today.

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