Property Development Top-Up Loans, Explained (EP: 261)

And the particular reason we're doing this is because we're dealing with ourselves right now, and this is not the first time.

And I've been someone who has helped somebody else out as well, so...

Yeah, so when we're talking about a loan top-up down the track, let's say, it can happen at a couple of different occasions.

So we're not talking about the finance up front to buy the site, and we might even get the approval to do everything.

But when we get to construction, that's when the second phase of the loan kicks in.

Some people need a top-up at that point.

You could also... run out of loan funds towards the end of a project, and that can happen for a few reasons.

A project could take longer.

It could consume your interest cap.

You might have to top it up there.

There could be overruns that go beyond your 5% contingency.

So things can happen towards the end of a project.

That's the one you're talking about.

I can remember you helping somebody out there once.

For about the last three or four months of their project, they knew they were going to run short at the end, that they wouldn't be able to make the final payment for the builder or maybe the second last payment and the last one.

And you came in there with a loan for them.

But what was interesting about that, Bob, if they'd gone back to a broker or a financier and got it, The line fees, all the fees that would have happened would have just taken up way too much money.

So to just go to somebody that they knew who could just loan that money at an interest rate, it was really worth it for them and me.

Yeah.

Yeah, so let's start earlier on, let's say at the construction stage.

So we've acquired our site, we've got our development permit, we've got our building permit, construction certificate, we're ready to build.

Now normally that's what we call the second phase or the second stage of finance.

And we usually have to tip in some extra money then because the banks, not the bank anymore, the finance is going to lend us all the construction finance that'll take us through to the end and then we'll sell, pay back the finance out of our sales.

That's a top up.

So when we did our feasibility at the beginning, we knew how much equity we'd need.