- 5th October 2021
- Posted by: DMM
- Category: Sales Guarantee
Raising cash to put into a new opportunity is and ongoing challenge for all developers, however, a property development sales guarantee could be a solution.
How Does a Property Development Sales Guarantee Work?
A cash injection of up to 10% of the GDV is possible through forward development funding and this money can be used towards the acquisition price of the property asset. The cash comes from property investors who will exchange contracts simultaneously upon the developer taking the senior debt to acquire the land/property.
The investor deposit is released to the developer in order that it can go into the project costs.
An Example of Property Development Sales Guarantee:
- A development of 20 houses has a GDV of £10,000,000 – each house GDV £500,000
- The forward property development sales guarantee will be up to 80% of the GDV – £8,000,000 – £400,000 per house guaranteed
- The investor deposit = 10% of the guarantee – £800,000
- The £800,000 deposit is paid to the developer and is used towards the acquisition price
The £800,000 deposit is paid to the developer and is used towards the acquisition price
The build term is 18 months and the sales term is a further 6 months with the senior lending being, therefore, 24 months.
- During the project the developer can sell the properties on the open market in the normal way
- As each unit is sold, the investor receives repayment of their deposit and fee for providing the guarantee
- At the end of the term, the property sales guarantee of £400,000 will be paid for any unsold units
- The investors fee is calculated on a sliding scale based on the proportion of unsold units and is not paid where the investors acquire a unit
Key Features of Forward Property Development Funding
- For all new build housing schemes
- Locations across England and Wales are considered
- 10 – 60 house units per development or phase (Not available for flats or apartments)
- Typical GDV’s of between £3,000,000 to £20,000,000
- 10% deposit is released to the developer REDUCING THEIR UPFRONT CONTRIBUTION
- No security required
- Investor pays their own legals
- Senior lenders valuation used