There is a common belief that once your development loan is approved, the finance side is done and dusted. It is not quite true, and understanding why will make you a calmer, better developer. Real projects move. Toward the end, a build can run longer than planned, interest can eat into your cap, a variation can push you past your contingency, or sales can take longer to settle. Any of these can mean you need a little more money to finish. That is a top-up.
Why the finance side is not always ‘done’
Approval is a milestone, not the finish line. The two points where a top-up usually comes in are during construction and near the end when sales are settling. Neither is fatal, and both are far more common than people admit.
Why lending at the construction stage is attractive
Providing money at the construction stage can be a very attractive position for an investor. The project is well underway, there is real security in place, and the timeframe to repayment is short. Understanding this helps you have a confident conversation when you need one.
How top-ups are structured
Top-ups can be arranged in several ways, including loan partners, second mortgages, caveats and deeds of priority. Each has its place. Knowing the options ahead of time means you are negotiating from a position of understanding, not panic.
Residual stock loans and other tools
A residual stock loan can help when you have completed stock still to sell. And for the right person, an industrial development can even be a smart home for self managed super. The point is that there are more tools available than most first-time developers realise.
Listen to the full episode
We covered this in episode 261 of the Property Mastermind Podcast. Listen to the full episode here.
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