Developer finance secured on property you already own

Most developers are asset rich and cash poor at exactly the wrong moments. The equity is sitting in a finished townhouse, a commercial building or a parcel of land, while the cheque that needs writing is for a deposit, a set of consultant invoices or a land tax bill. Developer finance secured on property turns that equity into working funds without waiting on a bank’s credit committee.

This hub explains how it works, where it fits alongside your construction lender, and what a private lender looks for.

What is developer finance secured on existing property?

It is a short-term private business loan, secured by a registered mortgage or caveat over real estate that already exists and that you (or your company or trust) already own. That security might be:

• a completed home or townhouse, including unsold stock from a past project
• a commercial, retail or industrial building
• vacant land or rural property (considered case by case)
• a combination of these, where two or more titles together give a stronger position

The loan amount runs from $20k to $5m. Private first mortgages can run for 1 to 24 months. Second mortgages and caveat loans sit behind an existing lender and are typically shorter.

Is this a construction loan?

No, and the difference matters.

A construction loan is secured on the project being built. The lender releases money in stages as work is certified, sends out a quantity surveyor, and its risk is tied to a building that doesn’t exist yet. That is a specialised product, and it is not what is offered here.

Funding on this site is secured on conventional, existing property. The lender looks at what the asset is today and what it would fetch if sold, not at the projected end value of a development. Because of that:

• the funds are advanced at settlement in one amount, not in progress draws
• there is no reliance on builder’s contracts, cost-to-complete reports or feasibility models as the security
• the property can be anywhere in the business, not just the development site

In practice, many developers run both side by side: a construction lender funding the build, and a private loan against another property covering everything the construction lender won’t.

What do developers and builders use it for?

Need	Typical security	Where to read more
Paying a deposit to lock up a new site	Equity in a home or investment property	Site deposit funding
DA fees, architects, engineers, surveyors	Existing property or the site itself	Pre-construction costs
Repaying a construction lender while units sell	The completed unsold units	Residual stock loans
Holding a site while approvals or the market catch up	The land, often with other property added	Land bank loans
Subcontractor payments, materials, an ATO debt	A builder’s own home, yard or investment property	Builder funding against property

Each of those pages takes the specific scenario apart in more detail. If you already know the property you’d offer and roughly what’s owing on it, you can check your options in about 60 seconds.

How does a private lender assess a developer?

A bank tends to start with your financial statements and work its way to the asset. A private lender works the other way round. The questions that carry the most weight are:

1. What is the security? Its type, location, condition and how readily it would sell.
2. What is already owing on it? Existing mortgages, caveats and any other registered interests.
3. How much do you need, and for what? The business purpose has to be clear.
4. How will the loan be repaid? The sale of a unit, the settlement of another property, a refinance to a bank or construction lender, or business cash flow.

There is no formal valuation required. The lender assesses the property itself, which saves you the cost of a valuer, removes the wait for a report, and avoids a conservative figure derailing a time-sensitive deal.

Past credit issues, an ATO debt or old defaults are considered case by case. For a developer, a clean exit and real equity usually outweigh a messy year on the credit file.

Illustrative example: funding the gap between projects

Illustrative: A Perth developer has just completed a row of four townhouses. Two have sold. The construction lender has been repaid from those sales, leaving two unsold townhouses held clear of debt, together worth around $1.6m. Meanwhile, an agent has offered the developer an off-market site that needs a deposit of $180k within days, plus around $90k for a planner, surveyor and architect to prepare a development application.

• Security: a first mortgage over the two unsold townhouses
• Loan: $300k, covering the deposit, the consultants and a buffer for holding costs
• Interest: capitalised, so no monthly repayments while the units are marketed
• Exit: repaid from the sale of the first of the two townhouses, expected within the term

The construction lender for the new site is a separate conversation, and it comes later. The private loan simply stops the developer losing the site because their equity was locked up in finished stock.

How are the price, term and exit set?

There’s no published price list. Pricing is set on each deal’s security, LVR, term and exit, and the aim is the sharpest price your situation allows. A first mortgage generally costs less than a second mortgage or caveat, because the lender ranks first in line.

A small assessment fee applies. It varies per loan and is shown on the Letter of Offer, so you see it before you commit.

Developers should also factor tax timing into the exit. The ATO notes that a seller carrying on an enterprise will need to account for GST on the sale of new residential property, and that a developer may be in that position even for a one-off transaction. In NSW, land tax is based on the unimproved value of the land and the threshold is applied to land owned at midnight on 31 December each year, so a site or stock held over the new year can carry a bill into the following year. Have your accountant map these into your cash flow before you settle on a term.

For a deeper look at how equity and LVR are worked out, see how much equity can I use, or try the secured borrowing power calculator.

Which loan type suits a developer: first, second or caveat?

• First mortgage: best where the property is debt-free or you are refinancing an existing lender out completely. Longest available term and generally the lowest cost.
• Second mortgage: keeps your existing bank or construction lender in place and ranks behind it. Usually needs the first lender’s consent.
• Caveat loan: often the fastest to put in place for short gaps, and can later be converted to a registered second mortgage if the timeline stretches.

Our lending partner fundU, the direct lender behind this site, writes all three. If you’re unsure which applies, the 60-second loan type quiz will point you in the right direction.

See if your development funding stacks up

You won’t trigger a credit check by asking, and your details stay with one direct lender rather than being sent around a panel. A specialist who understands development reads every enquiry and comes back with a straight answer.

The quickest route to a firm yes or no is accuracy. Tell us what the property is, who owns it, what is owing against it and how you plan to repay, and the first answer you get will be the one that holds. Start your enquiry now and see what your existing property can do for the next project.