How delays can cost your development

Monday, 5th Oct 2015
Categories: Finance, Newsletter

lossesIf you’re completing a project that’s being bankrolled with development finance, you’ll want to avoid delays in your project.

One of the most important points that novice developers often forget is the issue of interest costs.

Typically, a development loan is a 2-year term and once the term is exceeded the loan is supposed to be repaid in full.

However, if it’s not repaid, then the developer will continue to incur interest on the outstanding loan and potentially at higher rates than during the term of the loan.

While most residential developments take up to 18 months to complete, if you don’t have the right builders and contractors working for you, you’re likely to face time blowouts.

Delays of a few months can leave developers with little time to sell their finished products and repay the debt before the loan term finishes.

In one instance, a developer engaged Momentum Wealth after failing to repay their loan by the end of the term because their project had suffered major delays.

The developer was paying penalty interest of 13%, or about $14,000 per month.

Our finance brokers were able to refinance the developer’s loan with a specialist private lender at 9% for an extended term.

This significantly reduced the developer’s repayments and provided them with additional time to complete and sell the finished project.

Interest expenses can turn a highly profitable project into a potential loss. Therefore, it’s important to avoid excessive interest costs by using reliable builders and contractors with a good track record of completing projects on time and on budget.

Many investors who want to develop but don’t have the time to manage the project often appoint a development manager, who will manage the entire project and keep the builder to their time frames.

Momentum Wealth is managing over $170 million in projects for our clients. If you’d like to speak to one of our development specialists, please call us on 9221 6399 to see how we can help you with your project.