Residential Subdivision Development

Mortgage brokers get involved in a lot of projects, including subdivision developments. These type of projects are quite complex and that different types of funding are required at different stages and milestones and the project.

Developers who tackle subdivisions are generally pretty risk-tolerant high net worth individuals with  with either good financial contacts or very good Taranaki mortgage brokers. Subdivisions have a number of different stages and some require long term finance while others require shorter term finance. A mortgage broker would probably have got involved during the initial purchase of the property, and the loan at this stage for the purchase would need to be over the long term as it could take years for the necessary planning, approvals and consents to be complete.

Ideally the mortgage broker would be able to obtain finance where the developer would not be saddled with large monthly payments, but rather have their payments capitalised onto the loan. The developer is going to have significant costs just planning the subdivision and sometimes these can be quite complex in terms of zoning, approval from Neighbours, and special engineering requirements for example dealing with drains and streams on the property. The mortgage broker may even be able to leverage the developers own personal finances or simply their reputation in order to obtain a favorable loan that covers the purchase of the land and all the planning and consenting work.

Once the planning and consenting is complete in the land will need to be cleared and prepared for the development of the subdivision. This may involve challenging work such as removing trees and brush from the property and backfilling and compacting existing drains and Waterways. The initial loan will need to be able to cover this work.

Following the clearing and preparation of the site the developer will then be able to start laying out the roads in the individual sections and that stage will be able to start marketing their properties. Depending on the reputation of the developer purchases may be able to put down a significant deposit to secure their own property even before any roads have been built or boundaries properly laid out, and these deposits can be used by the developer to offset the initial loan and costs.

The challenge for the professional independent mortgage brokers in Wanganui is to set up a financing arrangement that takes account of the risks involved, and this can require some serious salesmanship to the finances and the banks. Once the developer starts taking and deposits for the sections and particularly if the developer can pre-sell most or all of the sections then the job of the mortgage broker becomes immediately much easier. Both banks and non Bank lenders will be very keen to lend to the developer simply because  at that stage the project becomes much lower risk and much higher guaranteed return.

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