A Monthly Success Video from Australia’s Billion Dollar Property Developer, Bob Andersen.
Hi everybody, Bob Andersen back again talking about property development.
You know, it’s pretty important in property development to get some good finance. Not many people have got thick enough wallets or bank accounts to do property development through cash. As a result, we need to use finance. That’s a good thing because we can really leverage up around capital by getting finance.
When it comes to finance for development—that’s a separate subject, you might have heard me talk about it in the past, it might go too deep on the two types of finance: retail and commercial finance—what I tell you is this: When you’re starting off in property development, my recommendation is to use a finance broker. You’ve got two choices: You can use a finance broker, or you can go direct. What I mean by ‘go direct’ is go direct to the bank—it could be a bank, whatever your financial institution you have, you could go direct there. The only problem with going direct is how much knowledge the person in the bank know about property development. Often, when you walk into a bank, you going to go directly to a BDM (business development manager). I’m sure they’re lovely people, and I’m sure they’re clever to a degree, but the problem is, they’re not really property experts. So the BDM, 5 minutes before that, might’ve been helping one of their clients lease some equipment or a car. A little bit before that, they might’ve been helping a client organise some factoring on their invoices. They have to wear quite a lot of hats, and the problem with wearing a lot of hats is that you tend to be not an expert in any particular area.
When it comes to property development, you really need an expert on finance. Whether it be an individual at a financial institution you’re talking to or a broker, you need somebody knowledgeable. The name of the game is “Get me the finance, show me the money.” That’s what it’s all about. Sadly, I’ve seen some really good deals fall over because people have tried too hard to do things themselves and haven’t worked through brokers. They’ve often gone and spoken to the wrong people, not put the deal up properly, and as a result, they haven’t got their finance in time—either they didn’t get it, or didn’t come through in time and they’ve lost it. Then someone else comes along, perhaps a bit smarter, or someone who’s been using some good finance context, got the deal done and made the money. See, the last thing you want is to lose a good deal because you haven’t got finance or haven’t got it on time.
My recommendation is when you’re starting out, use a finance broker. It could be a small deal, maybe up to 2 or 3-lot subdivision, or up to 3 townhouses. In that sort of case, you just use a normal residential bank. When you buy the property, it might be just a normal residential loan, and that’s fine. But even at that point, I’d be wanting to use a broker who really understands development. Because a little bit down the track, when you get your development approvals, you’re going to need some development finance—whether it’s your normal retail bank, or the commercial division of the bank, or one of the other various avenues of getting commercial finance, sooner or later, you’re going to have some development finance. Even if you might just get some little residential finance just to buy the property upfront, it’s okay. So idea is this: Use a broker, and make sure the broker has development finance experience. As I’ve said, too many good deals go down the drain when that’s not covered.