Finance: 3 July 2021
Recently a few people have asked me about finance – specifically interest rates, pre-sales and QS requirements for my project, so I thought I would post something about my finance considerations.
Finance was something that I found difficult to navigate on my own as there was little independent advice at the time. However, note that my development is mid-sized (14 units) and is a bespoke design on 1,500m2 so these challenges may not apply to smaller developments.
Initially, I was focused on the direct finance costs (line fee and interest rate). Being caught in the depths of the COVID 19 fear generation machine, managing my risk was vital. Although, I couldn’t really understand why everyone was projecting a massive housing crash – pent up cash was swimming about and yield was being strangled.
My finance approach was (and generally has been) to NOT use brokers (sorry brokers). I am good enough on spreadsheets and have a fairly good handle on finance, as I prefer to deal directly with key professionals. So, I got on the phone and made connections.
Two main banks agreed to fund me. One with high conditions and the other with acceptable conditions. Both required bank QS, project management and a level of pre-sales. But, I decided to go with specialist NZ based non-bank funding because there were two good providers.
The interest rate and line fees were higher than offered by the main banks, but the direct advice of my funder and effectively no conditions was extremely attractive. This made the cost cheaper up to the end of the ninth month based on pre-sale pricing. Which brings me to the “risk consideration.”
Risk versus return was a vital balance for me.
(1) I chose to engage a highly experienced project manager that could give me a ‘bespoke’ service
(2) I went with experienced NZ based non-bank funding with no conditions
(3) I still pre-sold four of my 14 units to reduce my construction debt
(4) I engaged a fully backed head contractor and engaged continued service from my design and planning team
Net result is that the market lift has meant that the product has certainly lifted in value, meaning I can keep more of the finished units for my long-term plans. Most importantly, the net outcome is financially better than if I had used a main bank where the bank QS and pre-sales would have cost me a lot.
By using professionals to deliver the product – so far, hurdles that could impact timing have been dealt with – I could not have dealt with them without my PM.
As my project has progressed (and it is only my second project), I have learned how complicated property development is especially when delivering a bespoke product (LIfeMark 5* and designed to be granted HomeStar 6).
