Small development finance – what you need to know
Whether you’re just getting started in property development or you already develop multiple lots, finance is an ongoing concern.
Read this short guide to find out how to secure finance for a small strata development and what long-term costs to expect.
What are the options?
You might need to apply for different types of finance at different stages of the property development life cycle.
- When you buy a lot in a strata property for the first time, you’ll need an acquisition or development loan.
- To build or renovate on a lot, you’ll need a construction loan.
- You’ll need an investment loan if your strata property will be a long-term investment.
A number of lenders offer specialist loans for developers, but this will depend on your credit history and other factors. You should compare loans from banks and alternative lenders to find the best deal for your circumstances.
How much can I borrow?
Development loans are calculated based on the final cost of the development project, not its sale value. The amount you can borrow and the amount of equity you have to contribute depends on the size of the development.
- Small developments of two or three units may be classed as residential loans. A loan can cover up to 80% of the cost, with the borrower providing the remaining 20%.
- Larger developments may require a commercial loan. This covers 60% to 70% of the cost, with the borrower providing the remaining 30% to 40%.
What do I need to provide?
Whether you’re applying for finance with a bank or another lender, you’ll be asked to provide a large number of documents to show you’ve considered all eventualities.
Your lender will ask to see:
- Cost of the lot, construction and other costs
- Design concepts and timeline
- Details of the strata development
- Projected sales figures and profits
- Your financial situation and how much equity you can provide
- Your prior development experience, if any
The lender will also arrange a valuation of your development so they can better determine its value and any possible risks involved. The property valuer will need copies of:
- Asking prices for units
- Building and unit specifications
- Building contracts and pre-sale contracts, if applicable
- Notices of council or infrastructure charges
Accounting and financial management
Once your development has been financed, there are ongoing financial obligations involved in strata ownership. These include:
- Budgeting and management of strata funds and levies
- Consultancy fees
- GST related activities
- Issuing audits and certificates
- Lodging tax returns and financial reports
- Maintenance and repairs
- Setting up a trust account
Check if your strata manager offers financial management services if you want them to take care of the day-to-day costs of ownership on your behalf.
Need help with small development finance?
Lake Group Strata is the leading strata management company in the Hunter Valley. We have specialists in accounting and financial management who take care of the financial obligations of ownership for our clients. We also operate a Trust Account through Macquarie Bank who specialise in providing strata finance.
Contact our team to find out more or request a quote.