22 Nov Michael’s Top Tips for raising finance (Part 2)
Michael Primrose digs a little deeper on what you should consider when raising finance. Read his tips below and don’t forget to refer back to part 1 to gain the full overview.
There is no need to rush into a financing product. Analyse your options and make sure you go for what is best for you, and not what is best for the Broker. People often rush into the first product presented to them because they are under pressure from the Vendor and the Agent. This can lead to higher rates, higher arrangement fees and maybe a lack of knowledge on the exit of the product.
Just take your time, analyse the options and make a decision based on what is best for you and not the Vendor!
Use a Good Broker
A good Broker can make all the difference to a project. You need to make sure that they know what they are doing and that they are raising the correct finance for you. A good Broker should do the following:
- They should analyse your deal and make sure the numbers stack
- They should be sending the deal to Lenders that are going to both deliver, but also deliver at the cheapest rates
- They should not be led by the biggest commissions!
- They should keep you informed throughout
- They should explain the options and also the exit (you do not want to be stuck on expensive finance, unable to exit!)
- They should make you fully aware of fees that they are charging and disclose if they are paying any fees away to referrers etc.
- They should be there to answer any questions that you have, and have an understanding of property themselves
Finding a good Broker can be hard, but I would also recommend going with recommendations from other people, who have actually used that Broker. Ask for recommendations in the property communities on Facebook and LinkedIn.
Know your exit
Again, this is one of the most important things. Make sure that you understand your exit and how you are going to redeem the finance. If you are taking a Bridging Loan or Development Loan, then you need to make sure that you understand how you are going to come off of the product. Are you going to sell? Are you going to refinance? If you are going to refinance, can you refinance? Is the affordability ok? What is your backup plan if the market drops and you struggle to sell?
A good Broker should go through these options with you, and it is always good to have your exits lined up before you even go for the initial finance. It is far too dangerous to be stuck on an expensive bridging product that you cannot exit, either because the units are not selling, or the refinance is not possible.
Get educated early on your exit!
Learn to walk away
This is the hardest thing to do. As Developers and Investors, we get attached to deals on a personal level. I have done this on a number of occasions personally, and it has cost me a lot of money! I got far too personally connected to a Development site that did not stack and wasted thousands in legal fees, just because I wanted it to work.
You need to learn to walk away. Especially if your Broker or the Lender is telling you that the deal does not stack. Don’t waste time working on the deals that don’t stack, spend your time finding the deals that do!
Also, don’t be afraid to walk away from a deal if you cannot raise the finance. I find that even after I tell Clients that a deal cannot get finance, they still string the Vendor along and the Estate Agent, just because they are too worried to pull out of the deal and risk their reputation.
I can assure you now, pulling out of a deal quickly is better than dragging it on 3 months and then pulling out when everyone has spent money and time on the deal. Agents appreciate quick honesty, and they are not going to punish you for pulling out of a deal if it does not stack. There is a reason it doesn’t stack.
Property is a business that relies fully on relationships! You build relationships with your team, with Investors and with Lenders. These relationships make a huge difference when raising finance. Each time you work with a Lender, it becomes easier and cheaper, each time you work with an investor it becomes easier and as you work with your team, you learn more about one another and it all becomes quicker. Relationships make the world go round, and building them with the right people can make all the difference.