Series 3, Episode 2
Hosted: 10/02/2021 07:00:00 pm
On the most recent Lock-In, we put the tools back in the shed and went behind the property management desk. Sufficient capital is really what turns the cogs in any business. Without access to funding, your property portfolio can quickly stay static. With an exciting chapter ahead of new mortgage brokers for LNPG, we introduced the first of the bunch on this webinar.
Rory O’Mara, the CEO of ClosedBridgingFinance.Com (CBF) joined us last week. But who are they and why should you care?
Here’s a bit of background on CBF to kick things off:
- Originally set up in 2006
- Initially for Rory to lend own funds for same day bridging
- Now lend funds for longer term and broker with traditional lenders like commercial banks, family offices and private HNW Lenders
- Provide Joint Venture Finance
Finance is a complex game, and it’s easy to get lost in the acronyms and statistics. Rory wanted to get us to think differently with creative ideas to solve these complex situations.
And at the pace Rory was speaking – it definitely got our minds doing double!
It’s a real kick in the teeth having brilliant portfolio plans, but just not getting the support from lenders.
Rory proposed to us two funding options. Firstly, Joint Venture Development Funding, when two or more developers pool their resources to fund a project all the way through to completion and it typically means you’re building to sell.
As you’d expect, you need to have a proven track record and a project with planning permission prior to being leant any cash, so it’s very important to choose your teammates wisely.
Here’s a few of the golden rules:
Define roles and responsibilities from the outset
Ask for and provide testimonials from former clients or Business partners
Take time to check Experian credit report, ID (Passport/Driving licence), and Bankruptcy
Keeping Up Tradition
Another option is ‘traditional’ Development Finance. Unsurprisingly, to obtain finance – you need a proven track record, and to be a viable funding opportunity, the margin on the Gross Domestic Value (GDV) should be 20% pre-finance – at a minimum.
Like JV, planning permission also needs to be granted. Here, however, the exit at the end of the project is usually either to build-to-sell or build-to-hold.
Here’s a few things to know about the lending amounts:
- Typically 100% of the build is leant which is paid in arrears
- The lending amount for the purchase of the property is usually 50% of the price. This is dependent on the stress test that is used on the total facilities
But what do you need to cover yourself?
- The deposit
- Stamp duty
- Legal duty for both yourself and lender
- Arrangement fee
- Exit fee
- Broker fee (if a broker is used)
- Monthly interest
Rory’s offerings brought a lot of promise, but if there’s no proper evidence – it’s just his word. Luckily, he had some fantastic case studies in abundance to back it up. The case studies that were shared were funded by the ‘traditional’ route. This is being funded either for the purchase and/or build. CBF also took care of the Planning and/or Development Finance.
Disused buildings are a sad sight to see. And unfortunately, we’ll be seeing plenty more insolvent business sites over the coming months. This is where property development can bring a whole new lease of life to an area.
We saw abandoned warehouses into student accommodation, pubs into flats, and Solicitor’s offices into HMOs. The reality is everyone needs to be fed – the lender, the developer and the tenants. Feed them, and the wheel keeps on moving.
You can rest on your laurels, or take more of a relentless approach of – ‘cash in the till, onto the next one’.
The Silver Bullet
Whilst great opportunities were presented during the webinar, there were some key considerations. As always, all funding is subject to underwriting, valuation and lender opinion. It’s important to remember, Rory’s presentation was not an offer to guaranteed funds or financial advice.
He prides himself on being straight up and not wasting your time – if you don’t need a bridging loan, you’ll soon know! Our best bit of advice is to speak to your accountant for financial advice before making real headway in any new projects.
It’s not always as black and white as simply obtaining funds from a lender – there’s always plenty of Is to dot and Ts to cross. In a brief cameo experience from Kam Gumman of One Click Finance, he restated the importance of doing your background research.
It’s vital to work with people who can get up to speed with your projects and understand the task at hand. In this case, Kam particularly emphasised the importance of working with a good solicitor and described them as ‘gold dust’! Whilst gold dust does entail extra cost, it’s worthwhile for credible solicitors or just anyone you hire as part of the project.
But there’s some situations that are out of your control – all you can do is make sure you’re as efficient as possible in the areas you can control.
And that’s your lot! You can learn more about Closed Bridging Finance here.