You might finish a project, step back, and realise a few apartments or townhouses are still sitting on the market. Residual stock finance gives you a way to unlock the value in those unsold properties, reduce debt, and even free up capital for your next project. If you’re thinking about going down this road, here are some important tips that can make the process smoother and give you a better shot at approval.
Know Exactly What Residual Stock Finance Does
Residual stock finance is designed for developers who’ve completed construction but have unsold units. Rather than offloading those at a discount, you can refinance them and manage existing debt. Remember, you’re not forced into quick sales that eat into your profit margins. Instead, you can market your properties properly, attract buyers willing to pay a fair price, and protect the return on your project.
Get a Valuation Report You Can Rely On
Lenders depend on this document to figure out what your unsold stock is worth in the current market. That’s why it pays to use an independent valuer who has solid experience in projects similar to yours. The clearer and specific the report, the more convinced lenders are of the legitimacy of your application. A strong valuation can also put you in a better position to negotiate more favourable loan terms.
Show Lenders You Have a Clear Sales Plan
No lender wants to lend money when they don’t know how you’re going to sell those other properties. A direct sales plan provides a way to demonstrate how you plan to sell the stock in a reasonable period of time. Support your plan with marketing tactics, sales projections and other data that shows demand in the area. If you can point to current enquiries or growth in the local suburb, the lenders are comfortable.
Keep a Strong Track Record with Your Loans
If you’re managing your construction loan, paying on time and abiding by other terms of the deal, lenders are confident that you’ll have the same commitment to residual stock finance. On the other hand, if you’ve fallen behind on payments, those will be concerns brought to light that may limit your options. To make your application stand out, focus on showing that you can handle a financial obligation.
Understand How the Loan-to-Value Ratio Works
Residual stock loans typically have restrictions based on the loan-to-value ratio, or LVR. Most lenders tend to operate anywhere between about 60 and 70%, so knowing that in advance allows you to frame your expectations. If the amount you’re looking to borrow falls within that range, it increases your odds of approval. Also, you will be ready to show how you will meet repayments within the term of the loan.
Work with Finance Specialists Who Know the Market
Some lenders can be more rigid, others far more flexible and with a better feel for property values. Finance experts know the lenders most receptive to your particular type of project. They will also help you negotiate terms, so you’re not paying more than necessary to exercise your business judgement. It can also make the whole process much less stressful for you to have someone experienced on your side.
Expect Higher Costs but Value the Flexibility
Indeed, residual stock loans often carry higher interest rates than ordinary home loans. Holding your stock longer than the average player saves you from panic-selling and also might allow you to retain the value of your properties. The challenge is recognising that the short-term cost of higher interest rates pales against long-term returns to your project from locking in on this kind of finance.
Making Residual Stock Finance Work for You
Getting finance once your development is complete might seem like another hoop to jump through, but it can become one of your most powerful instruments if you approach it the right way. Learn about LVR requirements, and call the finance experts who also know their business. Residual stock finance can protect your yields and plan with greater certainty for the next exciting project.
