If your client wants to maximise their potential investment profits from a single block of land, a residential development such as a duplex has the most significant potential. However, securing a property development loan to build this type of investment property can be challenging. However, if the development consists of four units or less, the loan is classified as a residential property development loan, which can be a lot easier to secure.
The basics of property development loans
Property development loans function the same way construction loans do. They operate on a drawdown schedule, meaning funds are released to the contractor as each stage is finished. At the end of the project, any unused funds are released. In general, property developments loans use the following construction phases:
- Deposit
- Base
- Frame
- Lock-up
- Fixing
Residential property development loans are generally considered low-risk loans by lenders, meaning that the lending criteria are less strict.
What your client needs to provide when applying for a property developments loan
Typically, lenders will assess two factors before approving a loan application:
1. Your client’s development plans
2. Your client’s financial situation
Your client will need to provide lots of documentation. Some of the documentation they will need are proof of contingency funds, the projected project cost, project specifications and blueprints, payslips, assets and liabilities and a plan for how they are going to sell the property when the project is completed.
The Benefit of Utilising Mortgage Street
As a non-bank lender, we can offer better property development loan terms than traditional banks. Most lenders require LVR to be below 80%, include only the cost of labour and materials when assessing the loan amount and have interest rates 1-2% higher than traditional investment loans. Our brokers can help you secure a loan for your client that is more competitive than those offered by banks and other traditional lenders.