Nick Verstage provides an update and case study on NO DEPOSIT DEVELOPMENTS…🏘️
Nick has spent the past 25 years building his expertise, so that he can help navigate the convoluted and ever-changing lending requisites and guide you to the ideal finance for your specific needs.
Here he sets out a brief case study to give you a flavour of how 1st Business Finance can help developers progress in their journeys with no deposit required!
Deferred Consideration gives a developer the option of not having to pay for land/an existing building upfront, so potentially a development can be started without a deposit. It all comes down to the seller’s willingness!
The buyer/developer can approach the seller and ask if they would be willing to defer their payment. This could be either deferring all the payment until the site is finished or deferring some funds at the start with further payments to be made throughout the development. Nick’s lenders can be flexible with this and structure it to suit both parties.
Once the seller agrees, the Lender will sit first charge on the site and the current owner (seller) will sit second charge to offer them protection. The value of the site is then used as security to lend the funds to the developer. Once the development is complete, it is sold or refinanced to pay back the loan and to pay for the land.
A recent example of this working is set out below:
Loan application received for £1.5m.
£900k was to purchase the site which had planning for 18 houses (to be built in 3 lots of 6).
£600k was to build the first 6 houses (£100k build cost each with expected sale price of £250k each). The profit would be used to build the remaining houses.
The developer had bought 4 sites from the seller previously and had built a relationship whereby he was able to approach them to see if a Deferred Consideration deal might be acceptable.
The seller agreed that instead of taking £900k up front, he would accept £930k in 18 month’s time. (Lender’s solicitors sorted all the legals for this.)
The Lenders then had a £900k asset to use as security to lend the developer the funds.
It was a great deal for everyone. The land owner got an extra £30k (he had to wait 18 months but he had owned the field for years so he was happy to wait). The developer is only borrowed £600k instead of £1.5m so paid much less interest. The developer then had the funds from the sale of the properties to pay for the land.
Does this sounds like it might be something that could help you progress your next project?
If you want to discuss any finance needs for your projects, give Nick a call or drop him an email to see how he can help you..
T: 07773 228 331 E: info@1stbusinessfinance.co.uk
