There are a number of considerations before deciding whether small scale property development is right for you.

Here are some tips from RealRenta about the the application and valuation process that you need to consider.

Property development finance is more complex than residential lending and therefore, more expensive.

Different types of lending are required for the various stages of the project, which include:

• Acquisition/Development Loan for the purchase, development application & pre construction costs. The Lender normally provides 70 to 80% of the final cost of the project. You normally need to provide 20% of the funds for a 2 dwelling project and 30-35% for larger projects, which are classified by lenders as commercial projects.

• Construction Loan for the building of the project

• Investment Loan if the project is being retained as a long-term investment

A property development application for finance needs to show a consideration for all of the project’s variables, as well as allowing for contingencies in the case of project delays.

The following information should be included when applying to the lender:

• The type of development
• Site description/zoning
• Concept of design
• Cost of the land
• Construction costs
• Sales and profit projections
• Anticipated completion timelines
• Financial condition of developer
• Available equity
• Previous property development experience

The valuation process is different, in that your project is valued at the beginning of the process, not the end, which is the case with regular property investment.

A professional Valuer from the bank’s independent panel of firms will be appointed to determine if any potential issues could arise, that could derail your project.

The Valuer will study your feasibility report and look for missed expenses, like selling and agent costs, holding costs, GST etc.

Lenders will always expect to make at least 15% profit from your project.

Property Development can be an excellent way to make money but it pays to have realistic expectations.

Try not to overestimate the strength of the market and if possible, avoid cross-collateralising with your existing properties, as this may cause problems once development is complete and the construction loan needs to be discharged.

Are you sick of handing over income from your investments directly to a Property Manager? Use RealRenta instead and get your rental income paid directly into your Bank Account. See how easy it is!

You will never pay a Property Manager again!

  * Up to 2 months Free