When comparing funding, it's not just about cost

Financing plays a critical role in any property development project, often determining whether it’s feasible and whether it will succeed in terms of profitability and completion times.

Developers should view financing as they would any other big-ticket expenditure where quality of service is essential, giving thorough consideration to a range of elements as opposed to just making their decisions based on cost.

A slew of other factors can have a decisive impact on project financing including speed, the expertise of your finance partners, and certainty of funds.

CrowdProperty property director Daniel He recommends developers establish long-standing partnerships with their financial providers. This can help to build high-trust relationships that ensure quality of service and help avoid the widespread pitfalls of the financing process.

“When you’ve got a direct relationship with your financier, it’s a very different depth of conversation,” Daniel said.

“It means you can focus on getting the deal done, with access to the people who make decisions.”

Speedy approvals slash opportunity costs

While it’s easy to focus on headline interest fees, Daniel points out that the timeframe of approvals can have an even bigger impact on the cost of projects. Lengthy approval times are economically detrimental for developers because of the heavy opportunity costs they incur.

“Financing times can have a huge impact on your projects, given they can run anywhere from several weeks to six months,” Daniel said.

“First of all, there’s the cost of holding interest. If you’re already holding land and waiting for further financing to be approved, it can be another three to six months of interest payments to the cost of the project. “Compounded over multiple projects, if financing is delayed by more than several months, you’re essentially reducing the number of projects you can complete over multiple years,” Daniel said. “This greatly reduces your overall profitability and business growth.”

“If your project finishes in just 12 months, you can recycle those funds and move on to the next project.”

“This significantly increases the velocity of money, letting you get that turnaround to start the next project.”

“Another advantage of having an established relationship with a trusted financing partner is a major reduction in approval times.”

“You can get in touch with expert people who understand your project and make the decisions, which translates into speedier approvals,” Daniel said.

Trust prevents the trap of hidden fees

Hidden fees are a commonplace peril in the financial landscape for the Australian property sector and can add significantly to project costs.

“You might see a headline interest rate advertised as 4.99 per cent, but when we’ve added all the hidden charges and costs to it, it ends up costing significantly more,” Daniel said.

“This can substantially change the profitability and feasibility of the deal.”

Hidden fees can come in many guises, including monthly management fees, establishment and exit fees, as well as default fees and even early exit fees.

As with lengthy approval times, a long-standing relationship with a trusted finance provider can help avoid the costly pitfall of hidden fees.

“We have a very good track record of developers coming back to us after their first deals, and we’re quite sure that transparency regarding fees is one of the reasons,” Daniel said.

“Once you’ve done one deal with us you know what you’re up for, and subsequent deals become very straightforward.”

Experienced partners get projects through the door

Long-standing relationships with financial providers can be especially advantageous for developers when these partners have special expertise in the same industry.

This is because specialised financial providers can also provide advice and assistance on projects to help them reach completion, as opposed to just providing funds and then leaving developers to their own devices.

“With CrowdProperty, we offer over 150 years of property development experience across our team in Australia and the UK,” Daniel said.

“If something has come up in one of your projects, it’s probably something we’ve already encountered ourselves.

“This means we can help, or provide possible solutions for you to consider.”

CrowdProperty recently helped a client slash the lead time on a subdivision project. It used its connections with a town planner to arrange a meeting with the council to discuss changes in the requirements for pipes that were difficult to source.

“Increasing the gauge of the pipes reduced the lead time from six months to just two months, for a saving of four months, in this example,” Daniel explained.

“We achieved this in a period of a week or so, helping the developer to maintain project momentum.”

For these reasons and more, developers should consider looking for a finance provider who can act as a long-standing partner so that they can enjoy speed, expertise and certainty when it comes to project funding.

Click here to learn more about the benefits of property finance by property experts.

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