Does A Development Need To Be Sold Once Complete?
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If you’re thinking about applying for a development loan, you might be wondering if you need to sell once it has been completed. Development loans can be tricky, as it depends on the type of development you’re building. Some developments may need presales, such as a commercial development. However, whether or not you sell your development or lease the buildings out is generally up to you and your lender.
Read on below to find out more about development loans.
What is a development loan?
A property development loan is designed to fund the construction of multiple properties under the same title. For developments of up to four units, funding falls under a residential property loan. For any larger development, a commercial property loan is needed.
Before you begin any development project, it crucial to first establish how much you can borrow and how you will be able to manage aspects of the development. This will save you the stress of trying to refinance later on or going over your projected budget.
When looking at property development loans, it is important to understand the two different types. Knowing which loan is right for your development will save you both money and time spent lodging documents, and get you on your way to building much faster.
Does a development need to be sold once complete?
Generally, deciding whether or not to sell your development once it is completed is up to you. Once your development has been finished, you may be able to decide to sell it, or just to lease the buildings out for either residential use or commercial use, depending on the type of development you have built.
Does a development need presales?
In short, it depends on the type of development loan that you have applied for. In the case of a residential development loan, you probably will not need to pre-sell any of the properties or units in the development in order to get approved for a loan, since a residential development is anything up to four units. However, your lender may have exceptions to this rule if you are planning to build in an area that is not considered metro, or inner-city.
If you have planned to develop in a particularly rural location, this may be seen as a higher risk by your lender, and therefore, they may wish to see some presales as added security.
In the case of commercial developments, it can be a little more complicated. For commercial developments, some lenders may require pre-sales before they will approve your loan. The percentage of pre-sale is generally up to the lender, and how secure they see your development as being, among many other factors, including location and space.
Residential development loans vs commercial development loans
Most lenders split property development into two parts, which can have very different approval processes, fees and interest rates.
- Residential- Most lenders define residential property development as a small scale development of up to four units. Funds for residential property loans are generally released at the end of each building stage instead of in one lump sum. This is to ensure that you are continually able to pay your builder throughout the construction process. Because developments of residential properties are smaller than those of commercial, they are seen as a lower risk to the lender and have easier lending criteria.
- Commercial-If your property development is greater than four residential units, lenders are likely to class it as commercial property development. This can range from a series of commercial properties to an apartment complex. Depending on your lender, there may be different commercial loans available. These could include short and long-term loans, unsecured or secured against real estate property, and equipment or other assets. Generally, the main differences between loans are whether they are fixed-rate or variable.
How does a commercial development work?
When looking at commercial development, it’s important to first think about the purpose of your loan. This is because the purpose of your loan will affect how lenders assess your application.
- Buying commercial property as an investment – If you’re choosing to invest in commercial property and then lease it out, lenders may view you as a low-risk borrower, and the application process may be easier.
- Buying commercial property as an owner-occupier- If you want to buy a commercial property to act as the premises for your own business, lenders may classify you as a higher risk. As a result, you’ll need to pass stricter lending criteria.
Many factors can affect the type of loan you are approved for. Your lending amount, interest rate and flexibility may change depending on the type of commercial development.
Where does Tiger Finance come in?
With Tiger Finance, we can help to get you a loan in four easy steps. You will have a free consultation with one of our specialists, and we will tailor-make you a loan. We will negotiate with lenders on your behalf before you are approved.
We have helped countless Australians with both good and bad credit ratings to be funded for their dream development. We understand that lending criteria from other lenders are too strict and can stop you from achieving your goals.
How we can help
Our finance specialists can help you find the right development loan for your project. Development loans are a complicated topic, but we will find a loan that makes your dream project that much easier.
If you are one of the many Australians finding getting a development loan difficult, Tiger Finance can make the process simple and pain-free.
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